##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended December 31, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 333-84068
 (CRUM & FORSTER LOGO)
 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)
 Securities registered pursuant to Section 12(b) of the Act:
 Securities registered pursuant to Section 12(g) of the Act:
 FORM 10-K
 Yes o No þ
 Yes þ No o
 Yes o No þ
 Yes o No o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 Yes o No þ
   Class
    
    Number of Shares Outstanding at February 25, 2010Common Stock, $.01 Par Value
    
    100
 Documents Incorporated by Reference




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##### Table of Contents



CRUM & FORSTER HOLDINGS CORP.
 Form 10-K
 Index
 STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
    
    
    4PART IITEM 1. BUSINESSOverview
    
    
    5Corporate Structure
    
    
    5Lines of Business
    
    
    7Geographic Distribution
    
    
    10Business Development and Methods of Distribution
    
    
    10Pricing and Underwriting
    
    
    11Catastrophe Risk Management
    
    
    12Reinsurance
    
    
    13Claims Management
    
    
    18Reserves
    
    
    18Asbestos, Environmental and Other Latent Exposures
    
    
    22Investments
    
    
    22Competition
    
    
    24Ratings
    
    
    25Insurance Regulatory Matters
    
    
    25Employees
    
    
    29ITEM 1A. RISK FACTORS
    
    
    29ITEM 1B. UNRESOLVED STAFF COMMENTS
    
    
    37ITEM 2. PROPERTIES
    
    
    37ITEM 3. LEGAL PROCEEDINGS
    
    
    38Litigation
    
    
    38ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    38PART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
    
    
    38ITEM 6. SELECTED FINANCIAL DATA
    
    
    38ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    40Critical Accounting Policies and Estimates
    
    
    40Summary of Operations
    
    
    50Results of Operations
    
    
    52Liquidity and Capital Resources
    
    
    60Contractual Obligations
    
    
    63Regulatory Issues
    
    
    63Off-Balance Sheet Arrangements
    
    
    63ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    63Interest Rate Risk
    
    
    64Credit Risk
    
    
    64Equity Price Risk
    
    
    66Foreign Currency Exchange Rate Risk
    
    
    67ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    68Index to Consolidated Financial Statements
    
    
    68Report of Independent Registered Public Accounting Firm
    
    
    69Consolidated Balance Sheets at December 31, 2009 and 2008
    
    
    70Consolidated Statements of Income for the Years Ended December 31, 2009, 2008 and 2007
    
    
    71Consolidated Statements of Shareholders Equity for the Years Ended December 31, 2009,
2008 and 2007
    
    
    72Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2009,
2008 and 2007
    
    
    73Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007
    
    
    74Notes to Consolidated Financial Statements
    
    
    76
  2




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    111ITEM 9A(T). CONTROLS AND PROCEDURES
    
    
    111Evaluation of Disclosure Controls and Procedures
    
    
    111Managements Report on Internal Control Over Financial Reporting
    
    
    111ITEM 9B. OTHER INFORMATION
    
    
    111PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    
    
    112Directors and Executive Officers
    
    
    112Corporate Governance
    
    
    113Audit Committee and Audit Committee Financial Expert
    
    
    113Compensation Committee
    
    
    113Compensation of Directors
    
    
    113Code of Ethics
    
    
    113ITEM 11. EXECUTIVE COMPENSATION
    
    
    113ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    113ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
    
    
    114ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    114Audit Fees
    
    
    114Audit-Related Fees
    
    
    114Tax Fees
    
    
    114All Other Fees
    
    
    114Audit Committee Pre-Approval Policies and Procedures
    
    
    114PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    114Financial Statement Schedules
    
    
    114Exhibits
    
    
    115SIGNATURES
    
    
    117POWER OF ATTORNEY
    
    
    117INDEX TO FINANCIAL STATEMENTS AND RELATED FINANCIAL STATEMENT SCHEDULES
    
    
    118Report of Independent Registered Public Accounting Firm on Financial Statement Schedules
    
    
    119Schedule I  Summary of Investments Other Than Investments in Related Parties
    
    
    120Schedule II  Condensed Balance Sheets of Crum & Forster Holdings Corp. at December 31,
2009 and 2008 (Parent Company Only)
    
    
    121Schedule II  Condensed Statements of Income of Crum & Forster Holdings Corp. for the
Years Ended December 31, 2009, 2008 and 2007 (Parent Company Only)
    
    
    122Schedule II  Condensed Statements of Cash Flows of Crum & Forster Holdings Corp. for the
Years Ended December 31, 2009, 2008 and 2007 (Parent Company Only)
    
    
    123Schedule II  Notes to Condensed Financial Statements
    
    
    124Schedule V  Valuation and Qualifying Accounts
    
    
    125Exhibit 10.47Exhibit 12.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   3




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STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
  
    
    Competitive conditions in the insurance market and the ability to attract and retain new
business;
    
    Adverse effect of volatility in the global financial markets including changes in
interest rates, credit spreads, foreign currency exchange rates and other factors;
    
    Current economic conditions;
    
    Insufficient loss reserves, including reserves for asbestos, environmental and other
latent claims;
    
    Occurrence of natural or man-made catastrophic events;
    
    Inability to realize the Companys investment objectives;
    
    Inability to obtain reinsurance coverage on reasonable terms and prices, particularly
property catastrophe reinsurance;
    
    Exposure to credit risk, in the event reinsurers or policyholders fail to pay the
Company amounts owed to it;
    
    Lowering or loss of one of the Companys financial strength ratings;
    
    Loss of key producers;
    
    Changes in the business or regulatory environment in which the Company operates as a
result of recent insurance industry investigations by government authorities and other
parties;
    
    Exposure to emerging claims and coverage issues;
    
    Restrictions on the ability of the Companys insurance subsidiaries to pay dividends;
    
    Subordination of debt securities to the obligations and liabilities of the Companys
insurance subsidiaries;
    
    Ability of Fairfax to determine the outcome of corporate action requiring stockholder
approval; and
    
    Changes in governmental regulations.
   4




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##### Table of Contents



PART I
 
 ITEM 1.
    
    BUSINESS
 
 Overview
     
 Corporate Structure
   5




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6




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##### Table of Contents



Lines of Business
  Years Ended December 31,2009
    
    
    2008
    
    
    2007(dollars in millions)
    
    $
    
    
    %
    
    
    $
    
    
    %
    
    
    $
    
    
    %General liability
    
    $
    188.5
    
    
    
    21.8
    %
    
    $
    216.3
    
    
    
    21.2
    %
    
    $
    251.5
    
    
    
    20.2
    %Workers compensation
    
    
    188.5
    
    
    
    21.8
    
    
    
    196.0
    
    
    
    19.2
    
    
    
    258.9
    
    
    
    20.8Commercial automobile
    
    
    96.8
    
    
    
    11.2
    
    
    
    164.0
    
    
    
    16.1
    
    
    
    203.4
    
    
    
    16.3Property
    
    
    87.4
    
    
    
    10.1
    
    
    
    155.6
    
    
    
    15.3
    
    
    
    272.0
    
    
    
    21.8Commercial multi-peril
    
    
    81.5
    
    
    
    9.5
    
    
    
    83.8
    
    
    
    8.2
    
    
    
    88.2
    
    
    
    7.1Accident and health
    
    
    190.9
    
    
    
    22.1
    
    
    
    159.7
    
    
    
    15.7
    
    
    
    127.6
    
    
    
    10.3Other1
    
    
    30.2
    
    
    
    3.5
    
    
    
    44.2
    
    
    
    4.3
    
    
    
    43.4
    
    
    
    3.5Total gross premiums written
    
    $
    863.8
    
    
    
    100.0
    %
    
    $
    1,019.6
    
    
    
    100.0
    %
    
    $
    1,245.0
    
    
    
    100.0
    %
 1
    
    Other includes personal automobile, homeowners, surety and fidelity lines of
business. General liability
  Years Ended December 31,2009
    
    
    2008
    
    
    2007Umbrella liability
    
    
    48.7
    %
    
    
    46.3
    %
    
    
    42.2
    %Products liability
    
    
    17.4
    
    
    
    19.7
    
    
    
    22.7Directors and officers liability
Directors and officers
liability
    
    
    8.8
    
    
    
    8.5
    
    
    
    7.2Employment practices liability
    
    
    3.3
    
    
    
    2.6
    
    
    
    2.6All other general liability
    
    
    21.8
    
    
    
    22.9
    
    
    
    25.3Total general liability
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
   7




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Workers compensation
 
    
    guaranteed cost products;
    
    large deductible policies; and
    
    retrospectively rated policies.
  
    
    the applicable premium rate, which varies by state according to the employees
duties and the business of the employer;
    
    the policyholders experience modification factor; and
    
    the policyholders payroll.
    Years Ended December 31,2009
    
    
    2008
    
    
    2007Guaranteed cost
    
    
    89.4
    %
    
    
    92.4
    %
    
    
    91.0
    %Large deductible
    
    
    7.8
    
    
    
    6.5
    
    
    
    7.7Retrospectively rated
    
    
    2.8
    
    
    
    1.1
    
    
    
    1.3Total workers compensation
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  Commercial automobile
 Property
  8




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Years Ended December 31,2009
    
    
    2008
    
    
    2007Fire and allied lines
    
    
    73.5
    %
    
    
    78.7
    %
    
    
    82.5
    %Inland marine
    
    
    24.0
    
    
    
    15.5
    
    
    
    10.7Earthquake
    
    
    2.5
    
    
    
    5.8
    
    
    
    6.8Total property
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  Commercial multi-peril
 Accident and health
  Years Ended December 31,2009
    
    
    2008
    
    
    2007Employer stop loss insurance
    
    
    39.5
    %
    
    
    27.9
    %
    
    
    21.8
    %Student medical insurance
    
    
    24.9
    
    
    
    30.6
    
    
    
    29.7Pet insurance
    
    
    14.9
    
    
    
    15.6
    
    
    
    10.1Retail travel and accident insurance
    
    
    13.2
    
    
    
    16.1
    
    
    
    24.7Other medical insurance
    
    
    7.5
    
    
    
    9.8
    
    
    
    13.7Total accident and health
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Other
  9




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Years Ended December 31,2009
    
    
    2008
    
    
    2007Bail bonds
    
    
    34.5
    %
    
    
    27.0
    %
    
    
    30.2
    %Personal automobile
    
    
    21.8
    
    
    
    17.5
    
    
    
    21.8Fidelity
    
    
    21.7
    
    
    
    40.4
    
    
    
    30.3Homeowners
    
    
    19.8
    
    
    
    14.0
    
    
    
    15.4Contract and commercial bonds
    
    
    2.2
    
    
    
    1.1
    
    
    
    2.3Total other
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 
 Geographic Distribution
  Years Ended December 31,2009
    
    
    2008
    
    
    2007California
    
    
    15.1
    %
    
    
    13.9
    %
    
    
    14.5
    %New York
    
    
    10.6
    
    
    
    10.1
    
    
    
    9.0Florida
    
    
    8.6
    
    
    
    9.5
    
    
    
    9.9Texas
    
    
    7.7
    
    
    
    8.4
    
    
    
    8.9New Jersey
    
    
    5.9
    
    
    
    6.9
    
    
    
    7.2Hawaii
    
    
    4.6
    
    
    
    4.4
    
    
    
    4.5Pennsylvania
    
    
    4.6
    
    
    
    4.5
    
    
    
    4.5Massachusetts
    
    
    4.1
    
    
    
    3.9
    
    
    
    3.4Illinois
    
    
    3.7
    
    
    
    3.7
    
    
    
    3.6Virginia
    
    
    2.1
    
    
    
    2.1
    
    
    
    2.0All other states
    
    
    33.0
    
    
    
    32.6
    
    
    
    32.5Total direct premiums written
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  
 Business Development and Methods of Distribution
    10




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Years Ended December 31,2009
    
    
    2008
    
    
    2007Independent regional retail firms
    
    
    47.8
    %
    
    
    43.3
    %
    
    
    38.5
    %Wholesale brokers
    
    
    33.0
    
    
    
    36.1
    
    
    
    41.5National brokers
    
    
    19.2
    
    
    
    20.6
    
    
    
    20.0Total direct premiums written
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  
 Pricing and Underwriting
     11




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The Company bears credit risk with respect to its reinsurers and
certain policyholders, and if one or more of them fails to pay, the Company could experience
losses, which would reduce its net income .
    
 Catastrophe Risk Management
     12




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Reinsurance
   Years Ended December 31,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007Earned premiums ceded to reinsurers1
    
    $
    (151.1
    )
    
    $
    (141.3
    )
    
    $
    (149.0
    )Commissions earned on ceded reinsurance premiums
    
    
    32.9
    
    
    
    31.3
    
    
    
    25.8Claims incurred ceded to reinsurers
    
    
    68.0
    
    
    
    (44.4
    )2
    
    
    52.3Provision for uncollectible reinsurance
    
    
    (2.0
    )
    
    
    (7.7
    )
    
    
    (8.0
    )Net impact of ceded reinsurance transactions
    
    $
    (52.2
    )
    
    $
    (162.1
    )
    
    $
    (78.9
    )
 1
    
    For the years ended December 31, 2009, 2008 and 2007, accident and health earned
premiums ceded to reinsurers were $60.7 million, $42.1 million and $18.6 million,
respectively.2
    
    For the year ended December 31, 2008, claims incurred ceded to reinsurers include
$75.9 million related to losses on commutations.  Maximum Retained(dollars in millions)
    
    MaximumRetention
    
    
    and ReinsuredLimitsGeneral Liability:Umbrella
    
    $
    5.0
    
    
    $
    25.0Management Protection1,2  primary and excess policies
    
    $
    5.1
    
    
    $
    10.0Property Per Insured/Per Risk
    
    $
    5.0
    
    
    $
    25.0Employer Stop Loss
    
    $
    0.5
    
    
    $
    5.0
 1
    
    Management protection includes directors and officers liability, errors and
omissions liability, employment practices liability, fiduciary liability and miscellaneous
professional liability.2
    
    The Company has a 30.0% co-participation in the excess layer, with the remaining 70%
ceded to Wentworth Insurance Company Limited (Wentworth), a Fairfax affiliate.   13




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Terrorism Risk
Insurance Program Reauthorization Act of 2007 Catastrophic events could
cause unanticipated losses and reduce net income
    At December 31, 2009A.M. Best
    
    Security
    
    
    Reinsurance
    
    
    % of(dollars in millions)
    
    Rating1
    
    Provided
    
    
    Recoverable
    
    
    TotalNorth American Specialty Insurance Company
    
    A
    
    $
    236.3
    2
    
    $
    349.0
    
    
    
    39.1
    %TIG Insurance Company (TIG) 3,4
    
    B+
    
    
    
    
    
    
    129.4
    
    
    
    14.5Fairmont Specialty Insurance Company3
    
    B++
    
    
    
    
    
    
    37.7
    
    
    
    4.2Swiss Reinsurance America Corporation
    
    A
    
    
    
    
    
    
    29.0
    
    
    
    3.2Munich Reinsurance America Inc.
    
    A+
    
    
    
    
    
    
    20.7
    
    
    
    2.3Wentworth3
    
    NR5
    
    
    18.5
    6
    
    
    19.2
    
    
    
    2.2Lloyds Syndicates
    
    A
    
    
    
    
    
    
    17.0
    
    
    
    1.9nSpire Re Limited3
    
    NR5
    
    
    14.0
    6
    
    
    12.4
    
    
    
    1.4Hannover Ruckversicherungs-Aktiengesellschaft
    
    A
    
    
    11.4
    7
    
    
    11.6
    
    
    
    1.3Travelers Indemnity
    
    A+
    
    
    
    
    
    
    10.7
    
    
    
    1.2Other
    
    
    
    
    48.2
    8
    
    
    256.0
    9
    
    
    28.7Total reinsurance recoverable
    
    
    
    $
    328.4
    
    
    $
    892.7
    
    
    
    100.0
    %
 1
    
    The A.M. Best rating system includes ratings of A++ and A+ (which are
Superior ratings), A and A- (which are Excellent ratings), B++ and B+ (which are
Very Good ratings) and nine lower ratings categories. Ratings are as of February 20, 2010.  14




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2
    
    Funds held at December 31, 2009. The unsecured balance due from North American
Specialty Insurance Company is effectively guaranteed by an upstream affiliated insurer in the
Swiss Re Group.3
    
    Fairfax affiliate.4
    
    Effective December 16, 2002, International Insurance Company merged with TIG, a
Fairfax subsidiary. TIG had statutory capital and surplus at December 31, 2009 of
approximately $786.6 million. These recoverable balances arise principally from a
restructuring in 1993, prior to Fairfaxs acquisition of Crum & Forster. For further
discussion, see Note 10 to the consolidated financial statements included in Item 8.
Financial Statements and Supplementary Data.5
    
    Not rated.6
    
    Held in irrevocable trusts, principally comprised of cash and U.S. Treasury
securities.7
    
    Includes $5.4 million in trusts and $6.0 million in letters of credit.8
    
    Includes $26.9 million in letters of credit, $15.1 million in funds held and $6.2
million in trusts.9
    
    Includes reserves for uncollectible reinsurance of $54.2 million. 83% of these gross
recoverable balances are from companies having an A.M. Best rating of A- or better.  Affiliated Reinsurers
   At December 31, 2009TotalReinsurance
    
    
    Paid
    
    
    Outstanding(dollars in millions)
    
    Recoverable
    
    
    Recoverable
    
    
    Reserves1
    
    
    CollateralTIG
    
    $
    129.4
    
    
    $
    
    
    
    $
    129.4
    
    
    $
    Fairmont Specialty Insurance Company
    
    
    37.7
    
    
    
    
    
    
    
    37.7
    
    
    
    Wentworth
    
    
    19.2
    
    
    
    0.1
    
    
    
    19.1
    
    
    
    18.5nSpire
    
    
    12.4
    
    
    
    
    
    
    
    12.4
    
    
    
    14.0Odyssey America Reinsurance Corp.
    
    
    6.1
    
    
    
    0.8
    
    
    
    5.3
    
    
    
    Other
    
    
    1.6
    
    
    
    0.1
    
    
    
    1.5
    
    
    
    3.0Total affiliated reinsurance recoverable balances
    
    $
    206.4
    
    
    $
    1.0
    
    
    $
    205.4
    
    
    $
    35.5
 1
    
    Includes case and incurred but not reported (IBNR) reserves.  Corporate Aggregate Reinsurance
   15




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##### Table of Contents



Years Ended December 31,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007Investment income
    
    $
    (15.5
    )
    
    $
    (11.7
    )
    
    $
    (16.1
    )Losses and LAE
    
    
    (14.9
    )
    
    
    65.8
    
    
    
    (13.7
    )Decrease in income before income taxes
    
    $
    (0.6
    )
    
    $
    (77.5
    )
    
    $
    (2.4
    )
  Prospective Corporate Aggregate Reinsurance
  Years Ended December 31,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007Funds held interest charged to investment income
    
    $
    
    
    
    $
    (1.6
    )
    
    $
    (2.3
    )Less: losses and LAE
    
    
    
    
    
    
    80.5
    
    
    
    Decrease in income before income taxes
    
    $
    
    
    
    $
    (82.1
    )
    
    $
    (2.3
    )
     16




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##### Table of Contents



Retroactive Corporate Aggregate Reinsurance
  Years Ended December 31,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007Funds held interest charged to investment income
    
    $
    (15.5
    )
    
    $
    (10.1
    )
    
    $
    (13.8
    )Less: losses and LAE
    
    
    (14.9
    )
    
    
    (14.8
    )1
    
    
    (13.7
    )Increase (decrease) in income before income taxes
    
    $
    (0.6
    )
    
    $
    4.7
    
    
    $
    (0.1
    )
 1
    
    For the year ended December 31, 2008, losses and LAE is comprised of a loss on
commutation of $4.2 million offset by $8.8 million of unamortized deferred income released on
commutation as well as $10.2 million of recurring deferred income amortization. For the years
ended December 31, 2009 and 2007, losses and LAE was comprised of only recurring amortization
of deferred income only.  Years Ended December 31,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007Decrease in reinsurance recoverable due from reinsurers
    
    $
    
    
    
    $
    (20.0
    )
    
    $
    (3.6
    )Less: related premiums paid
    
    
    
    
    
    
    (8.2
    )
    
    
    (1.3
    )Decrease in income deferred during the year
    
    
    
    
    
    
    (11.8
    )
    
    
    (2.3
    )Amortization of deferred income
    
    
    (14.9
    )
    
    
    (18.9
    )
    
    
    (13.7
    )Decrease in deferred income
    
    
    (14.9
    )
    
    
    (30.7
    )
    
    
    (16.0
    )Deferred income on retroactive reinsurancebeginning of year
    
    
    121.3
    
    
    
    152.0
    
    
    
    168.0Deferred income on retroactive reinsuranceend of year
    
    $
    106.4
    
    
    $
    121.3
    
    
    $
    152.0
       17




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##### Table of Contents



Claims Management
  
    
    maintenance of timely and adequate reserves for claims and the cost-effective delivery
of claims services by controlling losses and LAE;
    
    financial integrity through the employment of investigative specialists who attempt to
limit fraudulent claims activity and a program to pursue appropriate subrogation and
recovery opportunities; and
    
    exceptional customer service whereby the Company applies its resources toward pursuing
timely investigation and resolution of customer claims.
   At December 31,Pending Claims
    
    2009
    
    
    2008
    
    
    2007Workers compensation1
    
    
    8,999
    
    
    
    9,473
    
    
    
    10,301General liability
    
    
    3,229
    
    
    
    3,331
    
    
    
    3,614Commercial automobile
    
    
    3,316
    
    
    
    4,416
    
    
    
    5,125All other
    
    
    1,524
    
    
    
    1,890
    
    
    
    2,387Total pending claims
    
    
    17,068
    
    
    
    19,110
    
    
    
    21,427
 1
    
    Excludes medical only claim counts. Years Ended December 31,New Claims
    
    2009
    
    
    2008
    
    
    2007Workers compensation1
    
    
    5,615
    
    
    
    6,595
    
    
    
    7,169General liability
    
    
    3,073
    
    
    
    3,247
    
    
    
    3,923Commercial automobile
    
    
    10,185
    
    
    
    15,014
    
    
    
    15,935All other
    
    
    2,716
    
    
    
    3,361
    
    
    
    3,541Total new claims
    
    
    21,589
    
    
    
    28,217
    
    
    
    30,568
 1
    
    Excludes medical only claim counts of 10,091, 11,953 and 13,628 for the years
ended December 31, 2009, 2008 and 2007, respectively.  
 Reserves
   18




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##### Table of Contents



At December 31, 2009Low End
    
    
    High Endof
    
    
    ofActuarial
    
    
    Actuarial(dollars in millions)
    
    Reserves
    
    
    Range
    
    
    RangeGeneral liability
    
    $
    610.3
    
    
    $
    467.8
    
    
    $
    700.4Workers compensation
    
    
    622.4
    
    
    
    542.1
    
    
    
    679.7Asbestos, environmental and other latent
    
    
    356.3
    
    
    
    257.7
    
    
    
    476.1Commercial automobile
    
    
    226.4
    
    
    
    199.0
    
    
    
    246.9Property
    
    
    87.0
    
    
    
    71.7
    
    
    
    97.7Other
    
    
    236.2
    
    
    
    192.7
    
    
    
    239.3Net of per risk reinsurance, gross of corporate aggregate reinsurance
    
    
    2,138.6
    
    
    
    1,731.0
    
    
    
    2,440.1Corporate aggregate reinsurance
    
    
    98.8
    
    
    
    79.9
    
    
    
    106.8Total reserves, net of per risk reinsurance and corporate aggregate
reinsurance
    
    
    2,039.8
    
    
    $
    1,651.1
    
    
    $
    2,333.3Ceded unpaid losses and LAE
    
    
    632.8Gross unpaid losses and LAE
    
    $
    2,672.6
   19




---



##### Table of Contents



Years Ended December 31,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007Workers compensation
    
    $
    (34.1
    )
    
    $
    (86.9
    )
    
    $
    (65.4
    )General liability
    
    
    0.9
    
    
    
    66.0
    
    
    
    (20.2
    )Commercial automobile
    
    
    22.9
    
    
    
    36.6
    
    
    
    (6.6
    )Property
    
    
    (10.5
    )
    
    
    (17.1
    )
    
    
    Asbestos, environmental and other latent
    
    
    6.7
    
    
    
    36.2
    
    
    
    54.5Commercial multi-peril
    
    
    (12.8
    )
    
    
    6.6
    
    
    
    (18.6
    )Other
    
    
    1.9
    
    
    
    (2.4
    )
    
    
    6.1Total adverse (favorable) development, net of per risk reinsurance
    
    
    (25.0
    )
    
    
    39.0
    
    
    
    (50.2
    )Amortization of deferred gain on retroactive corporate aggregate reinsurance
    
    
    (14.9
    )
    
    
    (18.9
    )
    
    
    (13.7
    )Total (favorable) adverse development, net of per risk and corporate
aggregate reinsurance
    
    
    (39.9
    )
    
    
    20.1
    
    
    
    (63.9
    )Add back: Per risk and corporate aggregate reinsurance
    
    
    5.1
    
    
    
    (111.6
    )
    
    
    (37.1
    )Total favorable development, gross of reinsurance
    
    $
    (34.8
    )
    
    $
    (91.5
    )
    
    $
    (101.0
    )
 Losses and Loss Adjustment
Expenses
      20




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##### Table of Contents



Ten-Year Analysis of Consolidated Loss and LAE Development Presented Net of Reinsurance With
Supplemental Gross Data
 At December 31,(dollars in millions)
    
    1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009Reserves for unpaid losses
and LAE (net of reinsurance
recoverable)
    
    $
    2,225
    
    
    $
    1,770
    
    
    $
    1,577
    
    
    $
    1,494
    
    
    $
    1,873
    
    
    $
    2,010
    
    
    $
    1,990
    
    
    $
    2,016
    
    
    $
    1,981
    
    
    $
    2,304
    
    
    $
    2,040Paid (cumulative) as of:One year later
    
    
    757
    
    
    
    676
    
    
    
    454
    
    
    
    160
    
    
    
    460
    
    
    
    481
    
    
    
    482
    
    
    
    571
    
    
    
    272
    
    
    
    633Two years later
    
    
    1,300
    
    
    
    1,026
    
    
    
    533
    
    
    
    521
    
    
    
    809
    
    
    
    815
    
    
    
    852
    
    
    
    637
    
    
    
    657Three years later
    
    
    1,565
    
    
    
    1,097
    
    
    
    824
    
    
    
    795
    
    
    
    1,065
    
    
    
    1,084
    
    
    
    816
    
    
    
    912Four years later
    
    
    1,626
    
    
    
    1,328
    
    
    
    1,049
    
    
    
    988
    
    
    
    1,277
    
    
    
    985
    
    
    
    1,025Five years later
    
    
    1,850
    
    
    
    1,504
    
    
    
    1,208
    
    
    
    1,162
    
    
    
    1,139
    
    
    
    1,144Six years later
    
    
    2,023
    
    
    
    1,637
    
    
    
    1,360
    
    
    
    986
    
    
    
    1,269Seven years later
    
    
    2,153
    
    
    
    1,763
    
    
    
    1,168
    
    
    
    1,089Eight years later
    
    
    2,277
    
    
    
    1,563
    
    
    
    1,263Nine years later
    
    
    2,094
    
    
    
    1,649Ten years later
    
    
    2,175Liability re-estimated as of:One year later
    
    
    2,258
    
    
    
    1,953
    
    
    
    1,596
    
    
    
    1,611
    
    
    
    1,942
    
    
    
    1,941
    
    
    
    1,894
    
    
    
    1,952
    
    
    
    2,001
    
    
    
    2,264Two years later
    
    
    2,445
    
    
    
    1,969
    
    
    
    1,749
    
    
    
    1,718
    
    
    
    1,932
    
    
    
    1,855
    
    
    
    1,840
    
    
    
    1,990
    
    
    
    1,951Three years later
    
    
    2,460
    
    
    
    2,093
    
    
    
    1,857
    
    
    
    1,702
    
    
    
    1,862
    
    
    
    1,830
    
    
    
    1,917
    
    
    
    1,959Four years later
    
    
    2,584
    
    
    
    2,203
    
    
    
    1,836
    
    
    
    1,643
    
    
    
    1,877
    
    
    
    1,908
    
    
    
    1,915Five years later
    
    
    2,680
    
    
    
    2,180
    
    
    
    1,787
    
    
    
    1,660
    
    
    
    1,968
    
    
    
    1,934Six years later
    
    
    2,676
    
    
    
    2,148
    
    
    
    1,804
    
    
    
    1,748
    
    
    
    1,998Seven years later
    
    
    2,652
    
    
    
    2,152
    
    
    
    1,888
    
    
    
    1,749Eight years later
    
    
    2,660
    
    
    
    2,242
    
    
    
    1,888Nine years later
    
    
    2,747
    
    
    
    2,239Ten years later
    
    
    2,753Cumulative (deficiency)/redundancy
    
    
    (528
    )
    
    
    (469
    )
    
    
    (311
    )
    
    
    (255
    )
    
    
    (125
    )
    
    
    76
    
    
    
    75
    
    
    
    57
    
    
    
    30
    
    
    
    40Gross liability  end of year
    
    $
    3,529
    
    
    $
    3,340
    
    
    $
    3,454
    
    
    $
    3,250
    
    
    $
    3,194
    
    
    $
    3,371
    
    
    $
    3,673
    
    
    $
    3,371
    
    
    $
    3,178
    
    
    $
    2,988
    
    
    $
    2,673Reinsurance recoverable
    
    
    1,304
    
    
    
    1,570
    
    
    
    1,877
    
    
    
    1,756
    
    
    
    1,321
    
    
    
    1,361
    
    
    
    1,683
    
    
    
    1,355
    
    
    
    1,197
    
    
    
    684
    
    
    
    633Net liability  end of year
    
    $
    2,225
    
    
    $
    1,770
    
    
    $
    1,577
    
    
    $
    1,494
    
    
    $
    1,873
    
    
    $
    2,010
    
    
    $
    1,990
    
    
    $
    2,016
    
    
    $
    1,981
    
    
    $
    2,304
    
    
    $
    2,040Gross re-estimated liability
at December 31, 2009
    
    $
    4,221
    
    
    $
    3,874
    
    
    $
    3,652
    
    
    $
    3,389
    
    
   $
    3,276
    
    
    $
    3,253
    
    
    $
    3,445
    
    
   $
    3,172
    
    
    $
    3,047
    
    
    $
    2,953Re-estimated reinsurance
recoverable at December 31,
2009
    
    
    1,468
    
    
    
    1,635
    
    
    
    1,764
    
    
    
    1,640
    
    
    
    1,278
    
    
    
    1,319
    
    
    
    1,530
    
    
    
    1,213
    
    
    
    1,096
    
    
    
    689Net re-estimated liability
at December 31, 2009
    
    $
    2,753
    
    
    $
    2,239
    
    
    $
    1,888
    
    
    $
    1,749
    
    
    $
    1,998
    
    
    $
    1,934
    
    
    $
    1,915
    
    
    $
    1,959
    
    
    $
    1,951
    
    
    $
    2,264Cumulative gross
(deficiency)/redundancy
    
    $
    (692
    )
    
    $
    (534
    )
    
    $
    (198
    )
    
    $
    (139
    )
    
    $
    (82
    )
    
    $
    118
    
    
    $
    228
    
    
    $
    199
    
    
    $
    131
    
    
    $
    35
  21




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##### Table of Contents



Asbestos, Environmental and Other Latent Exposures
    Years Ended December 31,2009
    
    
    2008
    
    
    2007(dollars in millions)
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetUnpaid latent losses and allocated LAE (ALAE),
beginning of the year
    
    $
    523.4
    
    
    $
    401.1
    
    
    $
    580.1
    
    
    $
    442.8
    
    
    $
    586.2
    
    
    $
    443.5Latent losses and ALAE incurred during the year
    
    
    27.3
    
    
    
    6.7
    
    
    
    56.7
    
    
    
    36.2
    
    
    
    55.9
    
    
    
    54.5Latent losses and ALAE paid during the year
    
    
    91.8
    
    
    
    51.5
    
    
    
    113.4
    
    
    
    77.9
    
    
    
    62.0
    
    
    
    55.2Unpaid latent losses and ALAE, end of the year
    
    $
    458.9
    
    
    $
    356.3
    
    
    $
    523.4
    
    
    $
    401.1
    
    
    $
    580.1
    
    
    $
    442.8
   Asbestos
    
    
    Environmental
    
    
    Other Latent
    
    
    Total LatentNumber of policyholders
open at December 31,
2007
    
    
    401
    
    
    
    261
    
    
    
    204
    
    
    
    866Opened during the year
    
    
    71
    
    
    
    80
    
    
    
    65
    
    
    
    216Closed during the year
    
    
    135
    
    
    
    105
    
    
    
    96
    
    
    
    336Number of policyholders
open at December 31,
2008
    
    
    337
    
    
    
    236
    
    
    
    173
    
    
    
    746Opened during the year
    
    
    85
    
    
    
    84
    
    
    
    64
    
    
    
    233Closed during the year
    
    
    66
    
    
    
    89
    
    
    
    78
    
    
    
    233Number of policyholders
open at December 31,
2009
    
    
    356
    
    
    
    231
    
    
    
    159
    
    
    
    746
 Losses and Loss Adjustment Expenses
 
 Investments
    22




---



##### Table of Contents



2009
    
    
    2008% of
    
    
    
    
    
    
    % of(dollars in millions)
    
    $
    
    
    Total
    
    
    $
    
    
    TotalFixed income securities, available-for-sale, at fair value1
    
    $
    1,519.5
    
    
    
    38.0
    %
    
    $
    1,533.3
    
    
    
    38.0
    %Fixed income securities, held-for-trading, at fair value
    
    
    321.4
    
    
    
    8.1
    
    
    
    234.0
    
    
    
    5.8Equity securities, available-for-sale, at fair value
    
    
    1,284.1
    
    
    
    32.2
    
    
    
    1,020.2
    
    
    
    25.3Investments at equity
    
    
    167.3
    
    
    
    4.2
    
    
    
    117.6
    
    
    
    2.9Derivative and other invested assets, at fair value
    
    
    387.9
    
    
    
    9.7
    
    
    
    412.7
    
    
    
    10.3Cash, cash equivalents and short-term investments, at fair value2
    
    
    311.8
    
    
    
    7.8
    
    
    
    714.2
    
    
    
    17.7Total investments
    
    $
    3,992.0
    
    
    
    100.0
    %
    
    $
    4,032.0
    
    
    
    100.0
    %
 1
    
    Includes securities deposited for derivative transactions of $29.4 million at
December 31, 2009.2
    
    Includes cash deposited for derivative transactions of $4.4 million at December 31,
2008.       23




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##### Table of Contents



At December 31,Rating
    
    2009
    
    
    2008AAA/Aaa
    
    
    65.3
    %
    
    
    82.0
    %AA/Aa2
    
    
    4.0
    
    
    
    2.8A/A2
    
    
    8.7
    
    
    
    1.9BBB/Baa2
    
    
    5.0
    
    
    
    BB/Ba2
    
    
    3.1
    
    
    
    B/B2
    
    
    3.5
    
    
    
    2.1CCC/Caa or lower, or not rated
    
    
    10.4
    
    
    
    11.2Total fixed income securities
    
    
    100.0
    %
    
    
    100.0
    %
   Investment Results
 
 Competition
      The Company operates in a highly competitive
environment, which makes it more difficult to attract and retain business
  24




---



##### Table of Contents



Ratings
    
 Insurance Regulatory Matters
  General
    25




---



##### Table of Contents



Possible Legislative and Regulatory Changes
    Certain business practices of the insurance
industry have become the subject of investigations by government authorities and other parties and
the subject of class action litigation
 NAIC Model Audit Role
  Producer Compensation Investigations
  Certain business practices of the insurance
industry have become the subject of investigations by government authorities and other parties and
the subject of class action litigation
 Regulation of Dividends and Other Payments from the Companys Insurance Subsidiaries
   26




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##### Table of Contents



Capital Adequacy
    27




---



##### Table of Contents



Investment Regulation
 $
 Guaranty Funds and Shared Markets
    Insurance Regulation Concerning Change or Acquisition of Control
   Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA)
   28




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##### Table of Contents



Employees
  
 ITEM 1A.
    
    RISK FACTORS
  The Company operates in a highly competitive environment, which makes it more difficult to attract
and retain business.
    Results in the property and casualty insurance industry are subject to fluctuations and
uncertainty, which may adversely affect managements ability to write policies.
  Volatility in the global financial markets and current economic conditions could have a material
adverse effect on the Companys results of operations and financial position.
   29




---



##### Table of Contents



The Company may incur a reduction in its net income if its reserves are insufficient.
  Losses and Loss Adjustment Expenses
     30




---



##### Table of Contents



Reserves for asbestos, environmental and other latent claims may be insufficient.
     Losses and Loss Adjustment Expenses
 Catastrophic events could cause unanticipated losses and reduce net income.
   31




---



##### Table of Contents



If the Company is unable to realize its investment objectives, its net income and financial
condition may be adversely affected.
  
  32




---



##### Table of Contents



The Company may be unable to obtain reinsurance coverage at reasonable prices or on terms that
adequately protect it.
   The Company bears credit risk with respect to its reinsurers and certain policyholders, and if one
or more of them fails to pay, the Company could experience losses, which would reduce its net
income.
   33




---



##### Table of Contents



The Company is a holding company and is dependent on dividends from its insurance subsidiaries to
pay its obligations, including interest and principal on its debt securities.
 3⁄4
 3⁄4
  34




---



##### Table of Contents



A downgrade in the financial strength ratings of the Companys insurance subsidiaries, especially
in the ratings issued by A.M. Best, could make it difficult for the Company to write quality new
or renewal business, secure adequate reinsurance on acceptable terms and retain its key management
and employees.
   The loss of any of the Companys key producers could have an adverse effect on the Companys
ability to generate business.
  Certain business practices of the insurance industry have become the subject of investigations by
government authorities and other parties and the subject of class action litigation.
   35




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##### Table of Contents



The effects of emerging claim and coverage issues on the Companys business are uncertain.
  The Companys debt securities are effectively subordinate to all of the obligations of the
Companys insurance subsidiaries, including all of the Companys liabilities with respect to
insurance policies that the Company has written or will write in the future.
  Control of the Companys corporate actions is retained by Fairfax, which may have interests that
are different from the interests of holders of the Companys debt securities.
  
    
    electing members of the Companys board of directors and appointment of members of the
audit committee;
    
    adopting amendments to the Companys charter documents;
    
    approving a merger or consolidation, liquidation or sale, of all, or substantially all,
of the Companys assets;
    
    approving transactions that would result in a change of control;
    
    funding its or its affiliates requirements or losses by causing the Company to
distribute additional amounts to it, whether by requiring the Company to incur additional
indebtedness or otherwise engage in financial or other reinsurance, investment, tax sharing
or other transactions with Fairfax or its affiliates; and
    
    entering into transactions with Fairfax or its affiliates.
  36




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##### Table of Contents



The Company is subject to extensive government regulation, which may limit the rates it can charge
or otherwise adversely affect its business.
    
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
   37




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##### Table of Contents



ITEM 3.
    
    LEGAL PROCEEDINGS
 
 Litigation
    
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
  
 ITEM 6.
    
    SELECTED FINANCIAL DATA
   38




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##### Table of Contents



For the Years Ended December 31,(dollars in thousands)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005GAAP STATEMENT OF
INCOME DATA:Gross premiums written
    
    $
    863,827
    
    
    $
    1,019,569
    
    
    $
    1,245,021
    
    
    $
    1,351,631
    
    
    $
    1,097,756Net premiums written
    
    $
    716,406
    
    
    $
    871,152
    
    
    $
    1,099,635
    
    
    $
    1,166,532
    
    
    $
    868,966Premiums earned
    
    $
    781,282
    
    
    $
    998,028
    
    
    $
    1,186,144
    
    
    $
    1,084,023
    
    
    $
    894,173Investment income and
realized investment
gains and losses
    
    $
    313,826
    
    
    $
    604,254
    
    
    $
    377,503
    
    
    $
    392,818
    
    
    $
    215,310Losses and LAE
    
    $
    526,112
    
    
    $
    822,867
    
    
    $
    752,969
    
    
    $
    666,079
    
    
    $
    615,505Policy acquisition
costs and other
underwriting expenses
    
    $
    272,315
    
    
    $
    320,447
    
    
    $
    340,196
    
    
    $
    314,403
    
    
    $
    254,452Income before equity
in earnings of
investees, net of tax
    
    $
    201,902
    
    
    $
    333,267
    
    
    $
    269,882
    
    
    $
    299,121
    
    
    $
    138,743Equity in earnings
(losses) of
investees, net of tax
    
    $
    79
    
    
    $
    (461
    )
    
    $
    23,300
    
    
    $
    13,162
    
    
    $
    17,193Net income
    
    $
    201,981
    
    
    $
    332,806
    
    
    $
    293,182
    
    
    $
    312,283
    
    
    $
    155,936
 At December 31,(dollars in thousands)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005GAAP BALANCE SHEET DATA:Total investments
(including cash and cash
equivalents and assets
pledged for derivatives and
short-sale
obligations)1
    
    $
    3,992,020
    
    
    $
    4,032,034
    
    
    $
    4,547,529
    
    
    $
    3,926,276
    
    
    $
    3,720,538Total assets
    
    $
    5,304,023
    
    
    $
    5,598,880
    
    
    $
    6,612,812
    
    
    $
    6,443,554
    
    
    $
    6,482,879Unpaid losses and LAE
    
    $
    2,672,605
    
    
    $
    2,987,803
    
    
    $
    3,178,506
    
    
    $
    3,371,549
    
    
    $
    3,673,034Long term debt
    
    $
    312,114
    
    
    $
    310,502
    
    
    $
    313,220
    
    
    $
    293,170
    
    
    $
    292,470Shareholders equity
    
    $
    1,517,727
    
    
    $
    1,166,432
    
    
    $
    1,293,459
    
    
    $
    1,093,055
    
    
    $
    961,193
 Years Ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005SELECTED FINANCIAL RATIOS BASED ON GAAP DATA:Loss and LAE ratio
    
    
    67.3
    %
    
    
    82.5
    %
    
    
    63.5
    %
    
    
    61.5
    %
    
    
    68.8
    %Underwriting expense ratio
    
    
    34.9
    
    
    
    32.1
    
    
    
    28.7
    
    
    
    29.0
    
    
    
    28.5Combined ratio
    
    
    102.2
    %
    
    
    114.6
    %
    
    
    92.2
    %
    
    
    90.5
    %
    
    
    97.3
    %Ratio of earnings to fixed charges2
    
    
    5.5
    x
    
    
    11.9
    x
    
    
    9.1
    x
    
    
    11.0
    x
    
    
    4.4
    x
 Years Ended December 31,(dollars in thousands)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005SELECTED COMBINED
STATUTORY DATA:Loss and LAE ratio
    
    
    69.2
    %
    
    
    74.1
    %
    
    
    64.1
    %
    
    
    61.9
    %
    
    
    69.4
    %Underwriting expense ratio
    
    
    37.5
    
    
    
    34.3
    
    
    
    30.0
    
    
    
    28.0
    
    
    
    28.4Combined ratio
    
    
    106.7
    %
    
    
    108.4
    %
    
    
    94.1
    %
    
    
    89.9
    %
    
    
    97.8
    %Policyholders surplus
    
    $
    1,628,159
    
    
    $
    1,410,612
    
    
    $
    1,639,751
    
    
    $
    1,406,822
    
    
    $
    1,313,988Ratio of net premiums
written to policyholders
surplus
    
    
    0.44
    x
    
    
    0.62
    x
    
    
    0.67
    x
    
    
    0.83
    x
    
    
    0.66
    x
 1
    
    Includes $29,425, $4,416, $1,043,436, $535,594 and $496,903 of assets pledged
for derivatives and short-sale obligations at December 31, 2009, 2008, 2007, 2006 and
2005, respectively.2
    
    For purposes of determining the ratio of earnings to fixed charges, earnings
include income before income taxes, adjusted for undistributed income or loss from equity
method investees and fixed charges. Fixed charges consist of interest expense,
amortization of capitalized expenses related to indebtedness and an estimate of implicit
interest included in rent expense. The calculation of the ratio of earnings to fixed
charges is filed as an exhibit to this Form 10-K.  39




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##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
 Critical Accounting Policies and Estimates
   Unpaid Losses and Loss Adjustment Expenses
   3⁄4
 3⁄4
 3⁄4
 3⁄4
  40




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##### Table of Contents



3⁄4
     3⁄4
 3⁄4
 3⁄4
    Change in Ultimate LossLine of business
    
    Accident Years
    
    and ALAE ($ millions)Workers Compensation
    
    2002-2009
    
    $37.0General Liability1
    
    2002-2009
    
    $38.3Commercial Automobile
    
    2006-2009
    
    $14.0
 1
    
    Excludes asbestos, environmental and other latent.  41




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42




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Asbestos Reserves
        43




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At December 31,(dollars in millions)
    
    2009Net unpaid losses and ALAE
    
    $
    269.43-year average net paid losses and ALAE
    
    $
    43.73-year survival ratios
    
    
    6.2
  44




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##### Table of Contents



Amount
    
    
    % of Total1Crum & Forster (dollars in millions)1Paid losses and ALAE at December 31, 2009
    
    $
    550.8
    
    
    
    67.2
    %Net unpaid losses and ALAE (case and IBNR) at December 31, 2009
    
    
    269.4
    
    
    
    32.8
    %Ultimate losses and ALAE at December 31, 2009
    
    $
    820.2
    
    
    
    100.0
    %Industry, as represented by A.M. Best Company (A.M. Best)2(dollars in millions)Paid losses and ALAE at December 31, 2008
    
    $
    51,400
    
    
    
    68.5
    %Net unpaid losses and ALAE (case and IBNR) at December 31, 2008
    
    
    23,600
    
    
    
    31.5Ultimate losses and ALAE at December 31, 2008
    
    $
    75,000
    
    
    
    100.0
    %
 1
    
    Net of per risk reinsurance, but before the benefit of corporate aggregate
reinsurance.2
    
    Extracted from an A.M. Best report dated December 7, 2009.      45




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##### Table of Contents



Environmental Reserves
        At December 31,(dollars in millions)
    
    2009Net unpaid losses and ALAE
    
    $
    70.83-year average net paid losses and ALAE
    
    $
    12.83-year environmental survival ratio
    
    
    5.5
   46




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Other Latent Reserves
  Summary
   Investments
    47




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48




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Reinsurance Recoverable
     Deferred Income Tax Assets
    Income Taxes
  49




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Summary of Operations
 Overview
         50




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Market Conditions
      51




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##### Table of Contents



Results of Operations
  Years Ended December 31,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007Gross premiums written
    
    $
    863.8
    
    
    $
    1,019.6
    
    
    $
    1,245.0Net premiums written
    
    $
    716.4
    
    
    $
    871.2
    
    
    $
    1,099.6Premiums earned
    
    $
    781.3
    
    
    $
    998.0
    
    
    $
    1,186.1Losses and LAE
    
    
    526.1
    
    
    
    822.9
    
    
    
    752.9Underwriting expenses
    
    
    272.3
    
    
    
    320.4
    
    
    
    340.2Underwriting (loss) profit
    
    
    (17.1
    )
    
    
    (145.3
    )
    
    
    93.0Investment income and realized investment gains
    
    
    313.8
    
    
    
    604.3
    
    
    
    377.5Interest and other expense
    
    
    31.2
    
    
    
    36.7
    
    
    
    39.4Costs related to early retirement of debt
    
    
    
    
    
    
    0.4
    
    
    
    21.2Income before income taxes and equity in earnings of investees
    
    
    265.5
    
    
    
    421.9
    
    
    
    409.9Income tax expense
    
    
    63.6
    
    
    
    88.6
    
    
    
    140.0Income before equity in earnings of investees
    
    
    201.9
    
    
    
    333.3
    
    
    
    269.9Equity in earnings (losses) of investees, net of tax
    
    
    0.1
    
    
    
    (0.5
    )
    
    
    23.3Net income
    
    $
    202.0
    
    
    $
    332.8
    
    
    $
    293.2Loss and LAE ratio
    
    
    67.3
    %
    
    
    82.5
    %
    
    
    63.5
    %Underwriting expense ratio
    
    
    34.9
    
    
    
    32.1
    
    
    
    28.7Combined ratio
    
    
    102.2
    %
    
    
    114.6
    %
    
    
    92.2
    %
    Losses and
Loss Adjustment Expenses Investment Results
  52




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Underwriting Results
 Gross Premiums Written
  Years Ended December 31,2009
    
    
    
    
    
    
    2008Increase/
    
    
    
    
    
    
    Increase/(dollars in millions)
    
    2009
    
    
    2008
    
    
    (Decrease)
    
    
    2007
    
    
    (Decrease)General liability
    
    $
    188.5
    
    
    $
    216.3
    
    
    $
    (27.8
    )
    
    $
    251.5
    
    
    $
    (35.2
    )Workers compensation
    
    
    188.5
    
    
    
    196.0
    
    
    
    (7.5
    )
    
    
    258.9
    
    
    
    (62.9
    )Commercial automobile
    
    
    96.8
    
    
    
    164.0
    
    
    
    (67.2
    )
    
    
    203.4
    
    
    
    (39.4
    )Property
    
    
    87.4
    
    
    
    155.6
    
    
    
    (68.2
    )
    
    
    272.0
    
    
    
    (116.4
    )Commercial multi-peril
    
    
    81.5
    
    
    
    83.8
    
    
    
    (2.3
    )
    
    
    88.2
    
    
    
    (4.4
    )Accident and health
    
    
    190.9
    
    
    
    159.7
    
    
    
    31.2
    
    
    
    127.6
    
    
    
    32.1Other
    
    
    30.2
    
    
    
    44.2
    
    
    
    (14.0
    )
    
    
    43.4
    
    
    
    0.8Total gross premiums written
    
    $
    863.8
    
    
    $
    1,019.6
    
    
    $
    (155.8
    )
    
    $
    1,245.0
    
    
    $
    (225.4
    )
  Years Ended December 31,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007Surety
    
    $
    11.1
    
    
    $
    12.4
    
    
    $
    14.0Fidelity
    
    
    6.5
    
    
    
    17.8
    
    
    
    13.2Personal automobile
    
    
    6.6
    
    
    
    7.8
    
    
    
    9.5Homeowners
    
    
    6.0
    
    
    
    6.2
    
    
    
    6.7Total gross premiums written in other
    
    $
    30.2
    
    
    $
    44.2
    
    
    $
    43.4
     53




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Casualty Gross Premiums Written
   Property Gross Premiums Written
    Other Gross Premiums Written
   54




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Net Premiums Written
  Years Ended December 31,2009
    
    
    2008
    
    
    2007(dollars in millions)
    
    $
    
    
    %1
    
    
    $
    
    
    %1
    
    
    $
    
    
    %1General liability
    
    $
    137.5
    
    
    
    72.9
    %
    
    $
    172.9
    
    
    
    80.0
    %
    
    $
    213.2
    
    
    
    84.8
    %Workers compensation
    
    
    185.3
    
    
    
    98.3
    %
    
    
    192.1
    
    
    
    98.0
    %
    
    
    252.6
    
    
    
    97.6
    %Commercial automobile
    
    
    94.1
    
    
    
    97.2
    %
    
    
    159.6
    
    
    
    97.3
    %
    
    
    199.7
    
    
    
    98.2
    %Property
    
    
    65.2
    
    
    
    74.6
    %
    
    
    115.2
    
    
    
    74.0
    %
    
    
    212.0
    
    
    
    77.9
    %Commercial multi-peril
    
    
    75.7
    
    
    
    92.9
    %
    
    
    77.8
    
    
    
    92.8
    %
    
    
    81.5
    
    
    
    92.4
    %Accident and health
    
    
    130.2
    
    
    
    68.2
    %
    
    
    117.7
    
    
    
    73.7
    %
    
    
    103.9
    
    
    
    81.4
    %Other
    
    
    28.4
    
    
    
    94.0
    %
    
    
    35.9
    
    
    
    81.2
    %
    
    
    36.7
    
    
    
    84.6
    %Total net premiums written
    
    $
    716.4
    
    
    
    82.9
    %
    
    $
    871.2
    
    
    
    85.4
    %
    
    $
    1,099.6
    
    
    
    88.3
    %
 1
    
    Percentage represents the percentage of net premiums written to gross premiums
written.  Premiums Earned
  Years Ended December 31,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007General liability
    
    $
    146.6
    
    
    $
    194.3
    
    
    $
    229.0Workers compensation
    
    
    188.2
    
    
    
    218.4
    
    
    
    258.0Commercial automobile
    
    
    119.0
    
    
    
    187.2
    
    
    
    210.4Property
    
    
    88.7
    
    
    
    164.4
    
    
    
    267.5Commercial multi-peril
    
    
    76.5
    
    
    
    79.9
    
    
    
    80.5Accident and health
    
    
    130.2
    
    
    
    117.7
    
    
    
    103.9Other
    
    
    32.1
    
    
    
    36.1
    
    
    
    36.8Total premiums earned
    
    $
    781.3
    
    
    $
    998.0
    
    
    $
    1,186.1
   55




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Losses and Loss Adjustment Expenses
  Years Ended December 31,2009
    
    
    2008
    
    
    2007(dollars in millions)
    
    Losses
    
    
    Ratio
    
    
    Losses
    
    
    Ratio
    
    
    Losses
    
    
    RatioAccident year, as reported
    
    $
    566.0
    
    
    
    72.4
    %
    
    $
    802.8
    
    
    
    80.4
    %
    
    $
    816.8
    
    
    
    68.9
    %(Favorable) adverse development of prior
years losses and LAE before impact of
corporate aggregate reinsurance:Accident year 2008
    
    
    10.6Accident year 2007
    
    
    (19.5
    )
    
    
    
    
    
    
    (17.1
    )
    
    
    
    
    
    
    Accident year 2006
    
    
    (28.7
    )
    
    
    
    
    
    
    (39.0
    )
    
    
    
    
    
    
    (10.2
    )Accident year 2005
    
    
    (28.9
    )
    
    
    
    
    
    
    (1.9
    )
    
    
    
    
    
    
    (26.9
    )Accident year 2004
    
    
    (3.0
    )
    
    
    
    
    
    
    (12.3
    )
    
    
    
    
    
    
    (41.7
    )Accident year 2003
    
    
    28.8
    
    
    
    
    
    
    
    2.1
    
    
    
    
    
    
    
    (1.0
    )Accident year 2002 and prior
    
    
    15.7
    
    
    
    
    
    
    
    107.2
    
    
    
    
    
    
    
    29.6Total (favorable) adverse development
    
    
    (25.0
    )
    
    
    (3.2
    )
    
    
    39.0
    
    
    
    3.9
    
    
    
    (50.2
    )
    
    
    (4.2
    )Impact of corporate aggregate reinsurance:Amortization of deferred gain
    
    
    (14.9
    )
    
    
    (1.9
    )
    
    
    (18.9
    )
    
    
    (1.8
    )
    
    
    (13.7
    )
    
    
    (1.2
    )Incurred losses and LAE
    
    $
    526.1
    
    
    
    67.3
    %
    
    $
    822.9
    
    
    
    82.5
    %
    
    $
    752.9
    
    
    
    63.5
    %
      56




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Accident Years Ended December 31,2009
    
    
    2008
    
    
    2007General liability
    
    
    68.8
    %
    
    
    73.3
    %
    
    
    58.9
    %Workers compensation
    
    
    80.7
    %
    
    
    81.2
    %
    
    
    69.4
    %Commercial automobile
    
    
    77.9
    %
    
    
    80.1
    %
    
    
    76.9
    %Property
    
    
    72.3
    %
    
    
    121.4
    %
    
    
    63.5
    %Commercial multi-peril
    
    
    54.4
    %
    
    
    47.0
    %
    
    
    54.7
    %Accident and health
    
    
    72.4
    %
    
    
    71.6
    %
    
    
    65.8
    %Other
    
    
    63.7
    %
    
    
    61.5
    %
    
    
    60.3
    %Accident year loss and LAE ratio
    
    
    72.4
    %
    
    
    81.5
    %
    
    
    65.8
    %
  Unpaid
Losses and Loss Adjustment Expenses
 Underwriting Expenses
    57




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Investment Results
  Years Ended December 31,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007Average investments, including cash and cash equivalents, at book value1
    
    $
    3,695.0
    
    
    $
    4,345.5
    
    
    $
    4,157.9Investment income
    
    $
    163.8
    
    
    $
    72.4
    
    
    $
    143.4Net realized investment gains
    
    
    150.0
    
    
    
    531.9
    
    
    
    234.1Pre-tax equity in earnings (losses) of investees
    
    
    0.1
    
    
    
    (0.7
    )
    
    
    35.8Change in unrealized investment gains and losses and foreign currency translation
    
    
    406.3
    
    
    
    (37.9
    )
    
    
    139.2Total return on investments
    
    $
    720.2
    
    
    $
    565.7
    
    
    $
    552.5Gross investment yield2
    
    
    5.3
    %
    
    
    2.5
    %
    
    
    5.1
    %Net investment yield2
    
    
    4.4
    %
    
    
    1.6
    %
    
    
    4.3
    %Total return on investments
    
    
    19.5
    %
    
    
    13.0
    %
    
    
    13.3
    %
 1
    
    Includes book value of assets pledged for derivatives and short-sale obligations of
$24.0 million, $4.4 million and $1,047.4 million at December 31, 2009, 2008 and 2007,
respectively.2
    
    Including pre-tax equity in earnings (losses) of investees.   Investment Income
    58




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Net Realized Investment Gains
  Years Ended December 31,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007Fixed income securities, available-for-sale
    
    $
    86.5
    
    
    $
    143.3
    
    
    $
    4.4Fixed income securities, held-for-trading
    
    
    75.0
    
    
    
    (90.9
    )
    
    
    (31.0
    )Equity securities
    
    
    69.6
    
    
    
    2.8
    
    
    
    27.9Investments at equity
    
    
    2.3
    
    
    
    (1.6
    )
    
    
    10.9Derivatives and other invested assets
    
    
    27.4
    
    
    
    673.0
    
    
    
    247.3260.8
    
    
    
    726.6
    
    
    
    259.5Other than temporary impairment charges:Equity securities
    
    
    (107.3
    )
    
    
    (190.3
    )
    
    
    (22.4
    )Fixed income securities
    
    
    (3.5
    )
    
    
    (4.4
    )
    
    
    (3.0
    )(110.8
    )
    
    
    (194.7
    )
    
    
    (25.4
    )Total pre-tax net realized investment gains
    
    $
    150.0
    
    
    $
    531.9
    
    
    $
    234.1
      Pre-tax Equity in Earnings (Losses) of Investees
 Financial Instruments
   59




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##### Table of Contents



Interest and Other Expense
  Income Taxes
  
 Liquidity and Capital Resources
 Holding Company
 3⁄4
     60




---



##### Table of Contents



Insurance Subsidiaries
   Year Ended December 31,2009
    
    
    2008
    
    
    2007Premiums collected
    
    $
    645.1
    
    
    $
    802.0
    
    
    $
    1,004.0Net paid losses and LAE1
    
    
    (709.3
    )
    
    
    (443.8
    )
    
    
    (749.2
    )Other underwriting expenses paid
    
    
    (279.4
    )
    
    
    (271.0
    )
    
    
    (277.7
    )Cash (outflow) inflow from underwriting
    
    
    (343.6
    )
    
    
    87.2
    
    
    
    (22.9
    )Investment income received
    
    
    120.1
    
    
    
    139.2
    
    
    
    131.0Interest expense paid
    
    
    (25.6
    )
    
    
    (26.0
    )
    
    
    (37.1
    )Income taxes paid
    
    
    (153.3
    )
    
    
    (99.5
    )
    
    
    (76.9
    )Cash (outflow) inflow from operations
    
    $
    (402.4
    )
    
    $
    100.9
    
    
    $
    (5.9
    )
 1
    
    Net paid losses and LAE paid in 2008 are net of $302.5 million of proceeds from
the commutation of a finite reinsurance contract.     61




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##### Table of Contents



Years Ended December 31,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007Combined policyholders surplus
    
    $
    1,628.2
    
    
    $
    1,410.6
    
    
    $
    1,639.8Statutory operating leverage
    
    
    0.44
    x
    
    
    0.62
    x
    
    
    0.67
    x
   62




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##### Table of Contents



Contractual Obligations
  2010 to
    
    
    2012 to
    
    
    2014 and(dollars in millions)
    
    Total
    
    
    2009
    
    
    2011
    
    
    2013
    
    
    beyondUnpaid losses and LAE
    
    $
    2,672.6
    
    
    $
    723.4
    
    
    $
    831.8
    
    
    $
    419.0
    
    
    $
    698.4Long-term debt, including interest payments
    
    
    521.9
    
    
    
    25.6
    
    
    
    51.2
    
    
    
    51.2
    
    
    
    393.9Operating leases
    
    
    76.2
    
    
    
    12.8
    
    
    
    18.5
    
    
    
    13.0
    
    
    
    31.9Other long-term liabilities
    
    
    42.0
    
    
    
    2.1
    
    
    
    10.3
    
    
    
    12.0
    
    
    
    17.6Total contractual obligations
    
    $
    3,312.7
    
    
    $
    763.9
    
    
    $
    911.8
    
    
    $
    495.2
    
    
    $
    1,141.8
 Unpaid Losses and Loss Adjustment Expenses
 The Company may incur a
reduction in its net income if its reserves are insufficient Unpaid Losses and Loss Adjustment Expenses
 Long-Term Debt, including Interest Payments
 Holding Company
 Operating Leases
  Other Long-Term Liabilities
  
 Regulatory Issues
 3⁄4
 
 Off-Balance Sheet Arrangements
  
 ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    63




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##### Table of Contents



Interest Rate Risk
  At December 31, 2009
    
    
    At December 31, 2008Fair Value of
    
    
    
    
    
    
    
    
    
    
    Fair Value ofFixed Income
    
    
    Hypothetical
    
    
    Hypothetical
    
    
    Fixed Income
    
    
    Hypothetical
    
    
    Hypothetical(dollars in millions)
    
    Securities
    
    
    $ Change
    
    
    % Change
    
    
    Securities
    
    
    $ Change
    
    
    % Change200 basis point decline
    
    $
    2,114.9
    
    
    $
    274.0
    
    
    
    14.9
    %
    
    $
    2,106.5
    
    
    $
    339.2
    
    
    
    19.2
    %100 basis point decline
    
    $
    1,975.0
    
    
    $
    134.1
    
    
    
    7.3
    %
    
    $
    1,958.5
    
    
    $
    191.2
    
    
    
    10.8
    %Base scenario
    
    $
    1,840.9
    
    
    
    
    
    
    
    
    
    
    $
    1,767.3
    
    
    
    
    
    
    
    100 basis point increase
    
    $
    1,687.2
    
    
    $
    (153.7
    )
    
    
    (8.4
    )%
    
    $
    1,584.3
    
    
    $
    (183.0
    )
    
    
    (10.4
    )%200 basis point increase
    
    $
    1,518.5
    
    
    $
    (322.4
    )
    
    
    (17.5
    )%
    
    $
    1,425.7
    
    
    $
    (341.6
    )
    
    
    (19.3
    )%
 
 Credit Risk
      64




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##### Table of Contents



As of and for the Year Ended December 31, 2009Effect on Pre-taxExposure/
    
    
    
    
    
    
    OtherNotional
    
    
    Carrying
    
    
    Comprehensive(dollars in millions)
    
    Value
    
    
    Value
    
    
    Income
    
    
    Earnings
    
    
    Net EquityCredit risk exposures:Fixed income securities1
    
    $
    1,753.1
    
    
    $
    1,753.1
    
    
    $
    131.6
    
    
    $
    156.9
    
    
    $
    288.5Warrants
    
    
    101.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Premiums receivable
    
    
    164.8
    
    
    
    164.8
    
    
    
    
    
    
    
    1.8
    
    
    
    1.8Reinsurance recoverable
    
    
    892.7
    
    
    
    892.7
    
    
    
    
    
    
    
    (2.0
    )
    
    
    (2.0
    )Total credit risk exposure
    
    $
    2,911.8
    
    
    $
    2,810.6
    
    
    
    131.6
    
    
    
    156.7
    
    
    
    288.3Hedging instruments:Credit default swaps
    
    $
    1,570.4
    
    
    $
    20.0
    
    
    
    
    
    
    
    (9.2
    )
    
    
    (9.2
    )Eurodollar futures contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.3
    )Total hedging instruments
    
    $
    1,570.4
    
    
    $
    20.0
    
    
    
    
    
    
    
    (9.5
    )
    
    
    (9.5
    )Net exposure
    
    
    
    
    
    
    
    
    
    $
    131.6
    
    
    $
    147.2
    
    
    $
    278.8
 1
    
    Excludes $87.8 million of U.S. government securities with a loss in other
comprehensive income of $26.4 million and a realized gain of $1.1 million.  As of and for the Year Ended December 31, 2008Effect on Pre-taxExposure/
    
    
    
    
    
    
    OtherNotional
    
    
    Carrying
    
    
    Comprehensive(dollars in millions)
    
    Value
    
    
    Value
    
    
    Income
    
    
    Earnings
    
    
    Net EquityCredit risk exposures:Fixed income securities1
    
    $
    1,597.9
    
    
    $
    1,597.9
    
    
    $
    38.7
    
    
    $
    (91.2
    )
    
    $
    (52.5
    )Warrants
    
    
    101.2
    
    
    
    
    
    
    
    
    
    
    
    (5.9
    )
    
    
    (5.9
    )Premiums receivable
    
    
    182.2
    
    
    
    182.2
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1Reinsurance recoverable
    
    
    968.2
    
    
    
    968.2
    
    
    
    
    
    
    
    (7.7
    )
    
    
    (7.7
    )Total credit risk exposure
    
    $
    2,849.5
    
    
    $
    2,748.3
    
    
    
    38.7
    
    
    
    (104.7
    )
    
    
    (66.0
    )Hedging instruments:Credit default swaps
    
    $
    3,044.3
    
    
    $
    138.8
    
    
    
    
    
    
    
    283.5
    
    
    
    283.5Eurodollar futures contracts
    
    
    1,013.0
    
    
    
    
    
    
    
    
    
    
    
    4.0
    
    
    
    4.0Total hedging instruments
    
    $
    4,057.3
    
    
    $
    138.8
    
    
    
    
    
    
    
    287.5
    
    
    
    287.5Net exposure
    
    
    
    
    
    
    
    
    
    $
    38.7
    
    
    $
    182.8
    
    
    $
    221.5
 1
    
    Excludes $169.4 million of U.S. government securities with a gain in other
comprehensive income of $55.6 million and a realized gain of $139.2 million.  65




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##### Table of Contents



Equity Price Risk
    As of and for the Year Ended December 31, 2009Effect on Pre-taxExposure/
    
    
    
    
    
    
    OtherNotional
    
    
    Carrying
    
    
    Comprehensive(dollars in millions)
    
    Value
    
    
    Value
    
    
    Income1
    
    
    Earnings
    
    
    Net EquityEquity exposures:Equity securities
    
    $
    1,284.1
    
    
    $
    1,284.1
    
    
    $
    299.5
    
    
    $
    (37.7
    )
    
    $
    261.8Investments at equity
    
    
    167.3
    
    
    
    167.3
    
    
    
    1.2
    
    
    
    55.6
    
    
    
    56.8Other invested assets
    
    
    367.9
    
    
    
    367.9
    
    
    
    
    
    
    
    58.9
    
    
    
    58.9Total equity exposure
    
    $
    1,819.3
    
    
    $
    1,819.3
    
    
    
    300.7
    
    
    
    76.8
    
    
    
    377.5Hedging instruments:Total return swaps
    
    
    472.7
    
    
    
    (1.9
    )
    
    
    
    
    
    
    (22.3
    )
    
    
    (22.3
    )Total equity hedging instruments
    
    $
    472.7
    
    
    $
    (1.9
    )
    
    
    
    
    
    
    (22.3
    )
    
    
    (22.3
    )Net equity exposure
    
    
    
    
    
    
    
    
    
    $
    300.7
    
    
    $
    54.5
    
    
    $
    355.2
 1
    
    Excludes foreign currency translation gains of $0.5 million.  66




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##### Table of Contents



As of and for the Year Ended December 31, 2008Effect on Pre-taxExposure/
    
    
    
    
    
    
    OtherNotional
    
    
    Carrying
    
    
    Comprehensive
    
    
    
    
    
    
    Net(dollars in millions)
    
    Value
    
    
    Value
    
    
    Income1
    
    
    Earnings
    
    
    EquityEquity exposures:Equity securities
    
    $
    1,020.2
    
    
    $
    1,020.2
    
    
    $
    (108.3
    )
    
    $
    (187.5
    )
    
    $
    (295.8
    )Investments at equity
    
    
    117.6
    
    
    
    117.6
    
    
    
    (22.3
    )
    
    
    (53.5
    )
    
    
    (75.8
    )Other invested assets
    
    
    273.9
    
    
    
    273.9
    
    
    
    
    
    
    
    (41.1
    )
    
    
    (41.1
    )Total equity exposure
    
    $
    1,411.7
    
    
    $
    1,411.7
    
    
    
    (130.6
    )
    
    
    (282.1
    )
    
    
    (412.7
    )Hedging instruments:Total return swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    362.1
    
    
    
    362.1S&P Index call options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.5
    )
    
    
    (0.5
    )SPDRs short-sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65.5
    
    
    
    65.5Common stock short-sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.7
    
    
    
    4.7Total equity hedging instruments
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    
    431.8
    
    
    
    431.8Net equity exposure
    
    
    
    
    
    
    
    
    
    $
    (130.6
    )
    
    $
    149.7
    
    
    $
    19.1
 1
    
    Excludes foreign currency translation losses of $1.6 million.   
 Foreign Currency Exchange Rate Risk
   67




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##### Table of Contents



ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageNumberReport of Independent Registered Public Accounting Firm
    
    
    69Consolidated Balance Sheets at December 31, 2009 and 2008
    
    
    70Consolidated Statements of Income for the Years Ended December 31, 2009, 2008 and 2007
    
    
    71Consolidated Statements of Shareholders Equity for the Years Ended December 31, 2009, 2008 and 2007
    
    
    72Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2009, 2008 and 2007
    
    
    73Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007
    
    
    74Notes to Consolidated Financial Statements
    
    
    76
  68




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
  
   69




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##### Table of Contents



CRUM & FORSTER HOLDINGS CORP.
 
 CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except per share amounts)
 At December 31,2009
    
    
    2008ASSETSInvestments:Fixed income securities, available-for-sale, at fair value (amortized cost of
$1,323,120 and $1,466,114 in 2009 and 2008, respectively)
    
    $
    1,490,121
    
    
    $
    1,533,334Fixed income securities, held-for-trading, at fair value
    
    
    321,359
    
    
    
    233,998Equity securities, available-for-sale, at fair value (cost of $1,070,577 and
$1,106,098 in 2009 and 2008, respectively)
    
    
    1,284,102
    
    
    
    1,020,154Investments at equity
    
    
    167,331
    
    
    
    117,586Derivatives and other invested assets, at fair value
    
    
    387,902
    
    
    
    412,747Short-term investments, at fair value
    
    
    68,211
    
    
    
    549,937Total investments
    
    
    3,719,026
    
    
    
    3,867,756Cash and cash equivalents
    
    
    243,569
    
    
    
    159,862Assets pledged for derivatives
    
    
    29,425
    
    
    
    4,416Accrued investment income
    
    
    31,244
    
    
    
    29,378Premiums receivable
    
    
    164,802
    
    
    
    182,158Reinsurance recoverable
    
    
    686,277
    
    
    
    759,028Reinsurance recoverable from affiliates
    
    
    206,420
    
    
    
    209,189Prepaid reinsurance premiums
    
    
    25,330
    
    
    
    28,995Deferred income taxes
    
    
    86,410
    
    
    
    239,077Deferred policy acquisition costs
    
    
    45,740
    
    
    
    52,705Other assets
    
    
    65,780
    
    
    
    66,316Total assets
    
    $
    5,304,023
    
    
    $
    5,598,880LIABILITIESUnpaid losses and loss adjustment expenses
    
    $
    2,672,605
    
    
    $
    2,987,803Unearned premiums
    
    
    297,821
    
    
    
    366,362Funds held under reinsurance contracts
    
    
    246,324
    
    
    
    228,835Accounts payable and other liabilities
    
    
    151,038
    
    
    
    417,669Deferred income on retroactive reinsurance
    
    
    106,394
    
    
    
    121,277Long-term debt
    
    
    312,114
    
    
    
    310,502Total liabilities
    
    
    3,786,296
    
    
    
    4,432,448Commitments and contingencies (Note 12)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
    
    
    256,859
    
    
    
    (7,455
    )Retained earnings
    
    
    519,875
    
    
    
    432,894Total shareholders equity
    
    
    1,517,727
    
    
    
    1,166,432Total liabilities and shareholders equity
    
    $
    5,304,023
    
    
    $
    5,598,880
 The accompanying notes are an integral part of the consolidated financial statements.
  70




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##### Table of Contents



CRUM & FORSTER HOLDINGS CORP.
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Dollars in thousands)
 Years Ended December 31,2009
    
    
    2008
    
    
    2007REVENUESPremiums earned
    
    $
    781,282
    
    
    $
    998,028
    
    
    $
    1,186,144Investment income
    
    
    163,842
    
    
    
    72,375
    
    
    
    143,418Net realized investment gains
    
    
    149,984
    
    
    
    531,879
    
    
    
    234,085Total revenues
    
    
    1,095,108
    
    
    
    1,602,282
    
    
    
    1,563,647EXPENSESLosses and loss adjustment expenses
    
    
    526,112
    
    
    
    822,867
    
    
    
    752,969Policy acquisition costs
    
    
    113,890
    
    
    
    152,325
    
    
    
    177,408Other underwriting expenses
    
    
    158,425
    
    
    
    168,122
    
    
    
    162,788Interest expense
    
    
    27,818
    
    
    
    27,885
    
    
    
    29,850Costs related to early retirement of debt
    
    
    
    
    
    
    392
    
    
    
    21,187Other expense
    
    
    3,331
    
    
    
    8,821
    
    
    
    9,576Total expenses
    
    
    829,576
    
    
    
    1,180,412
    
    
    
    1,153,778Income before income taxes and equity in earnings of investees
    
    
    265,532
    
    
    
    421,870
    
    
    
    409,869Income tax expense
    
    
    63,630
    
    
    
    88,603
    
    
    
    139,987Income before equity in earnings of investees
    
    
    201,902
    
    
    
    333,267
    
    
    
    269,882Equity in earnings (losses) of investees, net of tax
    
    
    79
    
    
    
    (461
    )
    
    
    23,300NET INCOME
    
    $
    201,981
    
    
    $
    332,806
    
    
    $
    293,182
 The accompanying notes are an integral part of the consolidated financial statements.
  71




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##### Table of Contents



CRUM & FORSTER HOLDINGS CORP.
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 (Dollars in thousands)
 Years Ended December 31,2009
    
    
    2008
    
    
    2007COMMON STOCKBalance, beginning and end of year
    
    $
    
    
    
    $
    
    
    
    $
    ADDITIONAL PAID-IN CAPITALBalance, beginning and end of year
    
    
    740,993
    
    
    
    740,993
    
    
    
    740,993ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAXBalance, beginning of year
    
    
    (7,455
    )
    
    
    44,479
    
    
    
    (36,978
    )Cumulative effect of adoption of ASC 820 and 825
    
    
    
    
    
    
    (29,897
    )
    
    
    Cumulative effect of adoption of ASC 815-15
    
    
    
    
    
    
    
    
    
    
    (10,146
    )Balance, beginning of year, after cumulative effect of adjustments
    
    
    (7,455
    )
    
    
    14,582
    
    
    
    (47,124
    )Unrealized investment gains (losses), net of transfers to
realized investment gains and losses
    
    
    263,782
    
    
    
    (23,586
    )
    
    
    71,285Foreign currency translation
    
    
    322
    
    
    
    (1,020
    )
    
    
    19,236Change in postretirement benefit costs not yet recognized in
net income
    
    
    210
    
    
    
    2,569
    
    
    
    1,082Balance, end of year
    
    
    256,859
    
    
    
    (7,455
    )
    
    
    44,479RETAINED EARNINGSBalance, beginning of year
    
    
    432,894
    
    
    
    507,987
    
    
    
    389,040Cumulative effect of adoption of ASC 820 and 825
    
    
    
    
    
    
    86,101
    
    
    
    Cumulative effect of adoption of ASC 815-15 and equity method
investee adoption of ASC 740
    
    
    
    
    
    
    
    
    
    
    9,465Balance, beginning of year, after cumulative effect of adjustments
    
    
    432,894
    
    
    
    594,088
    
    
    
    398,505Net income
    
    
    201,981
    
    
    
    332,806
    
    
    
    293,182Dividends to shareholder
    
    
    (115,000
    )
    
    
    (494,000
    )
    
    
    (183,700
    )Balance, end of year
    
    
    519,875
    
    
    
    432,894
    
    
    
    507,987TOTAL SHAREHOLDERS EQUITY
    
    $
    1,517,727
    
    
    $
    1,166,432
    
    
    $
    1,293,459
 The accompanying notes are an integral part of the consolidated financial statements.
  72




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CRUM & FORSTER HOLDINGS CORP.
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 (Dollars in thousands)
 Years Ended December 31,2009
    
    
    2008
    
    
    2007NET INCOME
    
    $
    201,981
    
    
    $
    332,806
    
    
    $
    293,182Change in components of other comprehensive income (loss) for the year,
before tax:Unrealized investment gains (losses), net of transfers to realized
investment gains and losses
    
    
    405,818
    
    
    
    (36,287
    )
    
    
    109,638Foreign currency translation
    
    
    496
    
    
    
    (1,569
    )
    
    
    29,594Postretirement benefit costs not yet recognized in net income
    
    
    323
    
    
    
    3,953
    
    
    
    1,664Other comprehensive income (loss) for the year before tax
    
    
    406,637
    
    
    
    (33,903
    )
    
    
    140,896Deferred income tax (expense) benefit for the year:Deferred income tax (expense) benefit from unrealized investment gains
and losses
    
    
    (142,036
    )
    
    
    12,701
    
    
    
    (38,353
    )Deferred income tax (expense) benefit from foreign currency translation
    
    
    (174
    )
    
    
    549
    
    
    
    (10,358
    )Deferred income tax expense from change in postretirement benefit
costs not yet recognized in net income
    
    
    (113
    )
    
    
    (1,384
    )
    
    
    (582
    )Total deferred income tax (expense) benefit for the year
    
    
    (142,323
    )
    
    
    11,866
    
    
    
    (49,293
    )Other comprehensive income (loss) for the year, net of tax
    
    
    264,314
    
    
    
    (22,037
    )
    
    
    91,603COMPREHENSIVE INCOME
    
    $
    466,295
    
    
    $
    310,769
    
    
    $
    384,785
 The accompanying notes are an integral part of the consolidated financial statements.
  73




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CRUM & FORSTER HOLDINGS CORP.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
 Years Ended December 31,2009
    
    
    2008
    
    
    2007OPERATING ACTIVITIESNet income
    
    $
    201,981
    
    
    $
    332,806
    
    
    $
    293,182Adjustments to reconcile net income to net cash from operating activities:(Accretion of discount) amortization of premium on fixed income
securities
    
    
    (8,193
    )
    
    
    103
    
    
    
    (7,313
    )Realized investment gains
    
    
    (149,984
    )
    
    
    (531,879
    )
    
    
    (234,085
    )Losses (earnings) of equity method investees, net of dividends
    
    
    365
    
    
    
    1,185
    
    
    
    (30,528
    )(Earnings) losses of investment companies and similar equity method
investees
    
    
    (53,187
    )
    
    
    51,238
    
    
    
    (12,985
    )Loss on commutation
    
    
    
    
    
    
    75,470
    
    
    
    Depreciation and amortization
    
    
    5,488
    
    
    
    5,978
    
    
    
    6,153Deferred income tax expense (benefit)
    
    
    10,344
    
    
    
    (164,313
    )
    
    
    143,814Non-cash costs related to early retirement of debt
    
    
    
    
    
    
    170
    
    
    
    9,216Other non-cash net income adjustments
    
    
    785
    
    
    
    15,692
    
    
    
    9,313Changes in:Accrued investment income
    
    
    (2,727
    )
    
    
    8,013
    
    
    
    (2,620
    )Premiums receivable
    
    
    19,180
    
    
    
    31,430
    
    
    
    37,426Reinsurance recoverable
    
    
    75,519
    
    
    
    434,063
    
    
    
    175,094Prepaid reinsurance premiums
    
    
    3,665
    
    
    
    (7,147
    )
    
    
    3,582Deferred policy acquisition costs
    
    
    6,965
    
    
    
    19,577
    
    
    
    11,682Other assets
    
    
    2,771
    
    
    
    11,482
    
    
    
    (6,128
    )Unpaid losses and loss adjustment expenses
    
    
    (315,198
    )
    
    
    (188,558
    )
    
    
    (193,043
    )Unearned premiums
    
    
    (68,541
    )
    
    
    (119,729
    )
    
    
    (90,091
    )Accounts payable and other liabilities
    
    
    (131,595
    )
    
    
    125,301
    
    
    
    (118,615
    )Net cash (used in) provided by operating activities
    
    
    (402,362
    )
    
    
    100,882
    
    
    
    (5,946
    )INVESTING ACTIVITIESPurchases of fixed income securities
    
    
    (457,293
    )
    
    
    (1,931,145
    )
    
    
    (151,814
    )Proceeds from sales of fixed income securities
    
    
    488,870
    
    
    
    2,360,186
    
    
    
    211,461Proceeds from maturities of fixed income securities
    
    
    50,300
    
    
    
    1,260
    
    
    
    2,395Purchases of equity securities
    
    
    (351,786
    )
    
    
    (672,716
    )
    
    
    (254,035
    )Proceeds from sales of equity securities
    
    
    351,104
    
    
    
    9,422
    
    
    
    239,458Net sales (purchases) of investments at equity
    
    
    7,292
    
    
    
    1,793
    
    
    
    (20,483
    )Purchases of derivatives and other invested assets
    
    
    (35,050
    )
    
    
    (14,632
    )
    
    
    (23,383
    )Proceeds from sales of derivatives and other invested assets
    
    
    109,684
    
    
    
    382,939
    
    
    
    81,070Purchases of short-term investments
    
    
    (165,529
    )
    
    
    (1,807,749
    )
    
    
    (335,404
    )Proceeds from sales and maturities of short-term investments
    
    
    622,296
    
    
    
    1,477,084
    
    
    
    153,396Net settlement of short-sale obligations
    
    
    
    
    
    
    (649,517
    )
    
    
    333,874Net change in cash and cash equivalents held as collateral
    
    
    4,416
    
    
    
    730,540
    
    
    
    (329,484
    )Net settlement of total return swaps and Eurodollar futures contracts
    
    
    (20,731
    )
    
    
    366,085
    
    
    
    Purchases of fixed assets
    
    
    (2,504
    )
    
    
    (2,604
    )
    
    
    (1,875
    )Net cash provided by (used in) investing activities
    
    
    601,069
    
    
    
    250,946
    
    
    
    (94,824
    )FINANCING ACTIVITIESDividends to shareholder
    
    
    (115,000
    )
    
    
    (335,202
    )
    
    
    (128,825
    )Repayment of 10 3/8% senior notes
    
    
    
    
    
    
    (4,270
    )
    
    
    (295,730
    )Issuance of 7 3/4% senior notes
    
    
    
    
    
    
    
    
    
    
    330,000New debt issuance costs
    
    
    
    
    
    
    
    
    
    
    (23,912
    )Net cash used in financing activities
    
    
    (115,000
    )
    
    
    (339,472
    )
    
    
    (118,467
    )Net change in cash and cash equivalents
    
    
    83,707
    
    
    
    12,356
    
    
    
    (219,237
    )Cash and cash equivalents, beginning of year
    
    
    159,862
    
    
    
    147,506
    
    
    
    366,743Cash and cash equivalents, end of year
    
    $
    243,569
    
    
    $
    159,862
    
    
    $
    147,506SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest
    
    $
    25,575
    
    
    $
    25,797
    
    
    $
    24,907Cash paid to parent for income taxes
    
    $
    153,326
    
    
    $
    99,514
    
    
    $
    76,906
 The accompanying notes are an integral part of the consolidated financial statements
  74




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CRUM & FORSTER HOLDINGS CORP.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 Years Ended December 31,2009
    
    
    2008
    
    
    2007SUPPLEMENTAL NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIESFixed income securities transferred to parent as payment for income taxes
    
    $
    54,008
    
    
    $
    
    
    
    $
    Note received as consideration for the sale of an investment in affiliate
    
    $
    
    
    
    $
    248,066
    
    
    $
    Note paid for the purchase of an investment in an affiliate
    
    $
    
    
    
    $
    246,066
    
    
    $
    In-kind dividend payment to parent in the form of fixed income securities
    
    $
    
    
    
    $
    158,798
    
    
    $
    Note received from parent in partial settlement of the Companys tax net
operating losses
    
    $
    
    
    
    $
    
    
    
    $
    41,882Note received from parent in settlement of the sale of a common stock investment
    
    $
    
    
    
    $
    
    
    
    $
    12,993In-kind dividend payment to parent representing cancellation of the
aforementioned notes received in 2007
    
    $
    
    
    
    $
    
    
    
    $
    54,875
 The accompanying notes are an integral part of the consolidated financial statements
  75




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
 1.
    
    Organization and Basis of Presentation
     2.
    
    Summary of Significant Accounting Policies
  Investments
    76




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
 Derivatives and
Hedging, Embedded Derivatives
  Investments  Equity Method and Joint
Ventures, Financial Instruments
  Derivatives
   Cash and Cash Equivalents
  Deferred Policy Acquisition Costs
  Goodwill
   77




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
 Unpaid Losses and Loss Adjustment Expenses
  Reinsurance
    Funds held under Reinsurance Contracts
  Income Taxes
    78




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
 Premiums
  Foreign Currency
 Foreign Currency Matters
 Accumulated Other Comprehensive Income (Loss), Net of Tax
  Recent Accounting Pronouncements
 Accounting Pronouncements Adopted
 ASU 2010-06. Improving Disclosures About Fair Value Measurements,
 ASC 105. Generally Accepted Accounting
Principles,
  79




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
 ASC 320. Investments  Debt and Equity
Securities
 ASC 820. Fair Value Measurements and
Disclosures
  ASC 825.
   80




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
     ASC 815. Derivatives and Hedging
  ASC 740. Income Taxes
  81




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
 Accounting Pronouncements Not Yet Adopted
 ASU 2009-17. Improvements to
Financial Reporting by Enterprises with Variable Interest Entities, Consolidation
 3.
    
    Investments
  Available-For-Sale Securities
  At December 31, 2009Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueFixed income securities:United States government and government agencies and
authorities
    
    $
    81,282
    
    
    $
    6,945
    
    
    $
    462
    
    
    $
    87,765States, municipalities and political subdivisions1
    
    
    1,185,380
    
    
    
    151,498
    
    
    
    7,914
    
    
    
    1,328,964Other corporate
    
    
    80,483
    
    
    
    22,334
    
    
    
    
    
    
    
    102,817Total fixed income securities
    
    
    1,347,145
    
    
    
    180,777
    
    
    
    8,376
    
    
    
    1,519,546Equity securities  common stocks
    
    
    1,070,577
    
    
    
    214,304
    
    
    
    779
    
    
    
    1,284,102Total available-for-sale securities
    
    $
    2,417,722
    
    
    $
    395,081
    
    
    $
    9,155
    
    
    $
    2,803,648
 1
    
    Includes assets pledged for derivatives at a fair value of $29,425 (amortized
cost of $24,025).  At December 31, 2008Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueFixed income securities:United States 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
  82




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
   At December 31, 2009Amortized Cost
    
    
    Fair ValueDue in one year or less
    
    $
    680
    
    
    $
    681Due after one year through five years
    
    
    1,727
    
    
    
    2,690Due after five years through ten years
    
    
    34,815
    
    
    
    39,760Due after ten years through twenty years
    
    
    140,384
    
    
    
    157,470Due after twenty years
    
    
    1,169,539
    
    
    
    1,318,945Total fixed income securities
    
    $
    1,347,145
    
    
    $
    1,519,546
  Years Ended December 31,2009
    
    
    2008
    
    
    2007Fixed income securities
    
    $
    105,181
    
    
    $
    94,292
    
    
    $
    97,148Equity securities
    
    
    299,469
    
    
    
    (108,311
    )
    
    
    (3,670
    )Other, primarily investments at equity
    
    
    1,168
    
    
    
    (22,268
    )
    
    
    16,160Change in unrealized investment
gains and losses, net of transfers
to realized investment gains and
losses, before income
taxes1
    
    
    405,818
    
    
    
    (36,287
    )
    
    
    109,638Deferred income taxes
    
    
    (142,036
    )
    
    
    12,701
    
    
    
    (38,353
    )Net change in unrealized
investment gains and losses, net
of transfers to realized
investment gains and losses
    
    $
    263,782
    
    
    $
    (23,586
    )
    
    $
    71,285
 1
    
    The amounts are net of transfers to realized investment gains and losses of
$72,863, $54,520 and $21,904 in 2009, 2008 and 2007, respectively.   83




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
  December 31, 2009
    
    
    December 31, 2008Number
    
    
    
    
    
    
    
    
    
    
    NumberFair
    
    
    Unrealized
    
    
    of
    
    
    Fair
    
    
    Unrealized
    
    
    ofValue
    
    
    Loss
    
    
    Securities
    
    
    Value
    
    
    Loss
    
    
    SecuritiesFixed income securities:Investment grade:U.S. government and government agencies and
authorities:6 months or less
    
    $
    11,284
    
    
    $
    462
    
    
    
    3
    
    
    $
    
    
    
    $
    
    
    
    
    States, municipalities and political subdivisions:6 months or less
    
    
    134,841
    
    
    
    7,873
    
    
    
    8
    
    
    
    385,140
    
    
    
    16,865
    
    
    
    277  12 months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,462
    
    
    
    1,132
    
    
    
    3Greater than 12 months
    
    
    518
    
    
    
    41
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    135,359
    
    
    
    7,914
    
    
    
    9
    
    
    
    400,602
    
    
    
    17,997
    
    
    
    30Non-investment grade, other corporate:6 months or less
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,100
    
    
    
    4,495
    
    
    
    1Total fixed income securities
    
    
    146,643
    
    
    
    8,376
    
    
    
    12
    
    
    
    436,702
    
    
    
    22,492
    
    
    
    31Equity securities:6 months or less
    
    
    5,678
    
    
    
    646
    
    
    
    2
    
    
    
    519,602
    
    
    
    115,366
    
    
    
    147  12 months
    
    
    21,439
    
    
    
    133
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Total equity securities
    
    
    27,117
    
    
    
    779
    
    
    
    3
    
    
    
    519,602
    
    
    
    115,366
    
    
    
    14Total securities in an unrealized loss position
    
    $
    173,760
    
    
    $
    9,155
    
    
    
    15
    
    
    $
    956,304
    
    
    $
    137,858
    
    
    
    45
    84




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
  At December 31, 2009UnrealizedFair Value
    
    
    LossDue in one year or less
    
    $
    
    
    
    $
    Due after one through five years
    
    
    
    
    
    
    Due after five through ten years
    
    
    623
    
    
    
    (44
    )Due after ten years through twenty years
    
    
    19,223
    
    
    
    (850
    )Due after twenty years
    
    
    126,797
    
    
    
    (7,482
    )Total fixed income securities in an unrealized loss position
    
    $
    146,643
    
    
    $
    (8,376
    )
 Fixed Income Securities, Designated as Held-For-Trading
   Investments at Equity
   At December 31,2009
    
    
    2008Cash and investments
    
    $
    1,057,406
    
    
    $
    832,936Total assets
    
    $
    1,290,825
    
    
    $
    1,015,502Total liabilities
    
    $
    788,967
    
    
    $
    674,362Shareholders equity or partners capital1
    
    $
    501,858
    
    
    $
    341,140
 1
    
    The difference between the Companys aggregate share of shareholders equity or
partners capital and the carrying value on the consolidated balance sheets is primarily
due to mark-to-market adjustments for changes in fair value of equity investments for which
the Company has elected the fair value option.  85




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
  Years Ended December 31,2009
    
    
    2008
    
    
    2007Total revenues
    
    $
    312,452
    
    
    $
    191,205
    
    
    $
    217,052Total expenses
    
    $
    210,243
    
    
    $
    200,906
    
    
    $
    150,715Net income (loss)
    
    $
    91,311
    
    
    $
    (22,664
    )
    
    $
    48,831
 Derivatives and Other Invested Assets
 Derivative Securities and Short-Sale Obligations
   December 31, 2009
    
    
    December 31, 2008Fair Value
    
    
    
    
    
    
    
    
    
    
    Fair ValueNotional
    
    
    
    
    
    
    Asset/
    
    
    Notional
    
    
    
    
    
    
    Asset/Amount
    
    
    Cost
    
    
    (Liability)
    
    
    Amount
    
    
    Cost
    
    
    (LiabilityCredit default swaps
    
    $
    1,570,393
    
    
    $
    21,624
    
    
    $
    20,027
    
    
    $
    3,044,313
    
    
    $
    42,477
    
    
    $
    138,830Total return swaps
    
    
    472,706
    
    
    
    
    
    
    
    (1,917
    )
    
    
    
    
    
    
    
    
    
    
    Other derivatives1
    
    
    101,201
    
    
    
    10,225
    
    
    
    
    
    
    
    1,114,201
    
    
    
    10,225
    
    
    
    
 1
    
    At December 31, 2009, other derivatives are comprised of warrants. At December
31, 2008, other derivatives are comprised of warrants and Eurodollar futures contracts. Credit Default Swaps
    86




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
    NotionalAmount
    
    
    Fair ValueExpiring in one year or less
    
    $
    702,591
    
    
    $
    1,277Expiring after 1 year through 5 years
    
    
    867,802
    
    
    
    18,750$
    1,570,393
    
    
    $
    20,027
  As of and for the Year Ended December 31, 2009Effect on Pre-taxExposure/
    
    
    
    
    
    
    OtherNotional
    
    
    Carrying
    
    
    ComprehensiveValue
    
    
    Value
    
    
    Income
    
    
    Earnings
    
    
    Net EquityCredit risk exposures:Fixed income securities1
    
    $
    1,753,140
    
    
    $
    1,753,140
    
    
    $
    131,576
    
    
    $
    156,916
    
    
    $
    288,492Warrants
    
    
    101,201
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Premiums receivable
    
    
    164,802
    
    
    
    164,802
    
    
    
    
    
    
    
    1,823
    
    
    
    1,823Reinsurance recoverable
    
    
    892,697
    
    
    
    892,697
    
    
    
    
    
    
    
    (2,000
    )
    
    
    (2,000
    )Total credit risk exposure
    
    $
    2,911,840
    
    
    $
    2,810,639
    
    
    
    131,576
    
    
    
    156,739
    
    
    
    288,315Hedging instruments:Credit default swaps
    
    $
    1,570,393
    
    
    $
    20,027
    
    
    
    
    
    
    
    (9,143
    )
    
    
    (9,143
    )Eurodollar futures contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (344
    )
    
    
    (344
    )Total hedging instruments
    
    $
    1,570,393
    
    
    $
    20,027
    
    
    
    
    
    
    
    (9,487
    )
    
    
    (9,487
    )Net exposure
    
    
    
    
    
    
    
    
    
    $
    131,576
    
    
    $
    147,252
    
    
    $
    278,828
 1
    
    Excludes $87,765 of U.S. government securities with a loss in other
comprehensive income of $26,395 and a realized gain of $1,066.  87




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
  As of and for the Year Ended December 31, 2008Effect on Pre-taxExposure/
    
    
    
    
    
    
    OtherNotional
    
    
    Carrying
    
    
    ComprehensiveValue
    
    
    Value
    
    
    Income
    
    
    Earnings
    
    
    Net EquityCredit risk exposures:Fixed income securities1
    
    $
    1,597,902
    
    
    $
    1,597,902
    
    
    $
    38,728
    
    
    $
    (91,201
    )
    
    $
    (52,473
    )Warrants
    
    
    101,201
    
    
    
    
    
    
    
    
    
    
    
    (5,902
    )
    
    
    (5,902
    )Premiums receivable
    
    
    182,158
    
    
    
    182,158
    
    
    
    
    
    
    
    100
    
    
    
    100Reinsurance recoverable
    
    
    968,217
    
    
    
    968,217
    
    
    
    
    
    
    
    (7,700
    )
    
    
    (7,700
    )Total credit risk exposure
    
    $
    2,849,478
    
    
    $
    2,748,277
    
    
    
    38,728
    
    
    
    (104,703
    )
    
    
    (65,975
    )Hedging instruments:Credit default swaps
    
    $
    3,044,313
    
    
    $
    138,830
    
    
    
    
    
    
    
    283,456
    
    
    
    283,456Eurodollar futures contracts
    
    
    1,013,000
    
    
    
    
    
    
    
    
    
    
    
    4,028
    
    
    
    4,028Total hedging instruments
    
    $
    4,057,313
    
    
    $
    138,830
    
    
    
    
    
    
    
    287,484
    
    
    
    287,484Net exposure
    
    
    
    
    
    
    
    
    
    $
    38,728
    
    
    $
    182,781
    
    
    $
    221,509
 1
    
    Excludes $169,430 of U.S. government securities with a gain in other
comprehensive income of $55,564 and realized gain of $139,163.   Total Return Swaps and Short-Sales
     88




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
  As of and for the Year Ended December 31, 2009Effect on Pre-taxExposure/
    
    
    
    
    
    
    OtherNotional
    
    
    Carrying
    
    
    ComprehensiveValue
    
    
    Value
    
    
    Income1
    
    
    Earnings
    
    
    Net EquityEquity exposures:Equity securities
    
    $
    1,284,102
    
    
    $
    1,284,102
    
    
    $
    299,469
    
    
    $
    (37,667
    )
    
    $
    261,802Investments at equity
    
    
    167,331
    
    
    
    167,331
    
    
    
    1,168
    
    
    
    55,605
    
    
    
    56,773Other invested assets
    
    
    367,875
    
    
    
    367,875
    
    
    
    
    
    
    
    58,908
    
    
    
    58,908Total equity exposure
    
    $
    1,819,308
    
    
    $
    1,819,308
    
    
    
    300,637
    
    
    
    76,846
    
    
    
    377,483Hedging instruments:Total return swaps
    
    
    472,706
    
    
    
    (1,917
    )
    
    
    
    
    
    
    (22,304
    )
    
    
    (22,304
    )Total equity
hedging
instruments
    
    $
    472,706
    
    
    $
    (1,917
    )
    
    
    
    
    
    
    (22,304
    )
    
    
    (22,304
    )Net equity exposure
    
    
    
    
    
    
    
    
    
    $
    300,637
    
    
    $
    54,542
    
    
    $
    355,179
 1
    
    Excludes foreign currency translation gains of $496.  As of and for the Year Ended December 31, 2008Effect on Pre-taxExposure/
    
    
    
    
    
    
    OtherNotional
    
    
    Carrying
    
    
    ComprehensiveValue
    
    
    Value
    
    
    Income1
    
    
    Earnings
    
    
    Net EquityEquity exposures:Equity securities
    
    $
    1,020,154
    
    
    $
    1,020,154
    
    
    $
    (108,311
    )
    
    $
    (187,491
    )
    
    $
    (295,802
    )Investments at equity
    
    
    117,586
    
    
    
    117,586
    
    
    
    (22,268
    )
    
    
    (53,497
    )
    
    
    (75,765
    )Other invested assets
    
    
    273,917
    
    
    
    273,917
    
    
    
    
    
    
    
    (41,134
    )
    
    
    (41,134
    )Total equity exposure
    
    $
    1,411,657
    
    
    $
    1,411,657
    
    
    
    (130,579
    )
    
    
    (282,122
    )
    
    
    (412,701
    )Hedging instruments:Total return swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    362,059
    
    
    
    362,059S&P Index call options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (499
    )
    
    
    (499
    )SPDRs short-sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,506
    
    
    
    65,506Common stock short-sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,749
    
    
    
    4,749Total equity hedging
instruments
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    
    431,815
    
    
    
    431,815Net equity exposure
    
    
    
    
    
    
    
    
    
    $
    (130,579
    )
    
    $
    149,693
    
    
    $
    19,114
 1
    
    Excludes foreign currency translation losses of $1,569.    89




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
 Other Derivatives
   Years Ended December 31,2009
    
    
    2008
    
    
    2007Credit default swaps
    
    $
    (9,143
    )
    
    $
    283,456
    
    
    $
    229,739Total return swaps
    
    
    (22,304
    )
    
    
    362,059
    
    
    
    SPDRs short-sales
    
    
    
    
    
    
    65,506
    
    
    
    (11,118
    )Common stocks short-sales
    
    
    
    
    
    
    4,749
    
    
    
    26,498Other1
    
    
    (344
    )
    
    
    (2,373
    )
    
    
    1,532Total net realized investment (losses) gains
    
    $
    (31,791
    )
    
    $
    713,397
    
    
    $
    246,651
 1
    
    Other includes warrants, Eurodollar futures contracts and S&P Index call
options.  Year Ended December 31, 2009Credit
    
    
    TotalDefault
    
    
    Return
    
    
    OtherSwaps1
    
    
    Swaps
    
    
    Derivatives
    
    
    TotalRealized investment gains (losses) on disposal
    
    $
    88,807
    
    
    $
    (20,387
    )
    
    $
    (343
    )
    
    $
    68,077Reversal of mark-to-market gains recognized in
prior periods
    
    
    (60,119
    )
    
    
    
    
    
    
    
    
    
    
    (60,119
    )Mark-to-market (losses) gains recognized in period
    
    
    (37,831
    )
    
    
    (1,917
    )
    
    
    (1
    )
    
    
    (39,749
    )Net realized investment (losses) gains
    
    $
    (9,143
    )
    
    $
    (22,304
    )
    
    $
    (344
    )
    
    $
    (31,791
    )
 1
    
    During the year ended December 31, 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. Year Ended December 31, 2008Credit
    
    
    Total
    
    
    
    
    
    
    CommonDefault
    
    
    Return
    
    
    SPDRs
    
    
    Stock Short-
    
    
    OtherSwaps1
    
    
    Swaps
    
    
    Short-Sales
    
    
    Sales
    
    
    Derivatives
    
    
    TotalRealized
investment gains
(losses) on
disposal
    
    $
    336,626
    
    
    $
    362,059
    
    
    $
    (22,523
    )
    
    $
    5,116
    
    
    $
    2,019
    
    
    $
    683,297Reversal of
mark-to-market
(gains) losses
recognized in prior
periods on current
period disposals
    
    
    (130,866
    )
    
    
    
    
    
    
    88,029
    
    
    
    (367
    )
    
    
    1,555
    
    
    
    (41,649
    )Mark-to-market
gains (losses)
recognized in
period
    
    
    77,696
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,947
    )
    
    
    71,749Net realized
investment
gains (losses)
    
    $
    283,456
    
    
    $
    362,059
    
    
    $
    65,506
    
    
    $
    4,749
    
    
    $
    (2,373
    )
    
    $
    713,397
 1
    
    During the year ended December 31, 2008, the Company sold credit default swaps
with a cost of $46,652 and notional amount of $2,154,472 for proceeds of$383,278.  90




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
 Year Ended December 31, 2007Credit
    
    
    Total
    
    
    SPDRs
    
    
    CommonDefault
    
    
    Return
    
    
    Short-
    
    
    Stock Short-
    
    
    OtherSwaps1
    
    
    Swaps
    
    
    Sales
    
    
    Sales
    
    
    Derivatives
    
    
    TotalRealized
investment gains
(losses) on
disposal
    
    $
    19,296
    
    
    $
    
    
    
    $
    
    
    
    $
    26,454
    
    
    $
    12,637
    
    
    $
    58,387Reversal of
mark-to-market
(gains) losses
recognized in prior
periods on current
period disposals
    
    
    2,263
    
    
    
    
    
    
    
    
    
    
    
    (326
    )
    
    
    (5,808
    )
    
    
    (3,871
    )Mark-to-market
gains (losses)
recognized in
period
    
    
    208,180
    
    
    
    
    
    
    
    (11,118
    )
    
    
    370
    
    
    
    (5,297
    )
    
    
    192,135Net realized
investment
gains (losses)
    
    $
    229,739
    
    
    $
    
    
    
    $
    (11,118
    )
    
    $
    26,498
    
    
    $
    1,532
    
    
    $
    246,651
 1
    
    During the year ended December 31, 2007, the Company sold credit default swaps
with a cost of $3,104 and notional amount of $121,290 for proceeds of $22,400. Other Invested Assets
  Investments in Related Parties
  Ownership Percentage atAt December 31, 2009
    
    
    At December 31, 2008
    
    
    December 31, 2009Carrying
    
    
    
    
    
    
    Carrying
    
    
    Crum &Cost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Forster
    
    
    FairfaxEquity securities:International Coal Group, Inc.
    
    $
    34,618
    
    
    $
    41,875
    
    
    $
    
    
    
    $
    
    
    
    
    6.3
    %
    
    
    26.1
    %Alliance Insurance Company
    
    $
    21,572
    
    
    $
    21,440
    
    
    $
    21,572
    
    
    $
    21,440
    
    
    
    20.0
    %
    
    
    20.0
    %Arab Orient Insurance Company
    
    $
    6,582
    
    
    $
    6,582
    
    
    $
    11,277
    
    
    $
    8,848
    
    
    
    21.9
    %
    
    
    21.9
    %Investments at equity:HWIC Asia Fund
    
    $
    35,228
    
    
    $
    85,685
    
    
    $
    35,228
    
    
    $
    57,313
    
    
    
    31.7
    %
    
    
    98.9
    %Dalton Greater China Fund
    
    $
    13,266
    
    
    $
    15,214
    
    
    $
    13,266
    
    
    $
    7,893
    
    
    
    46.4
    %
    
    
    77.6
    %TRG Holding Corporation
    
    $
    5,025
    
    
    $
    8,090
    
    
    $
    5,025
    
    
    $
    8,091
    
    
    
    1.4
    %
    
    
    100.0
    %Rutland Fund A
    
    $
    4,666
    
    
    $
    2,448
    
    
    $
    4,676
    
    
    $
    4,036
    
    
    
    12.7
    %
    
    
    25.4
    %Ivy Realty Fund II, L.P.
    
    $
    1,277
    
    
    $
    874
    
    
    $
    1,169
    
    
    $
    1,118
    
    
    
    11.3
    %
    
    
    22.6
    %Other invested assets:Odyssey common shares
    
    $
    246,066
    
    
    $
    305,818
    
    
    $
    246,066
    
    
    $
    256,570
    
    
    
    8.8
    %
    
    
    100.0
    %Odyssey preferred shares
    
    $
    8,090
    
    
    $
    7,964
    
    
    $
    8,090
    
    
    $
    5,740
    
    
    
    N/A
    
    
    
    N/AAdvent
    
    $
    30,142
    
    
    $
    26,603
    
    
    $
    20,092
    
    
    $
    11,607
    
    
    
    17.5
    %
    
    
    100.0
    %
     91




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
           Regulatory Deposits
  Investment Income
  Years Ended December 31,2009
    
    
    2008
    
    
    2007Interest on fixed income securities
    
    $
    105,719
    
    
    $
    103,328
    
    
    $
    102,905Dividends from equity securities
    
    
    34,346
    
    
    
    25,169
    
    
    
    21,713Income (losses) from investments at equity and other invested assets
    
    
    54,906
    
    
    
    (46,239
    )
    
    
    12,985Other, primarily interest on cash and cash equivalents1
    
    
    1,272
    
    
    
    27,074
    
    
    
    40,030Gross investment income
    
    
    196,243
    
    
    
    109,332
    
    
    
    177,633Interest on funds held under reinsurance contracts
    
    
    (15,459
    )
    
    
    (11,714
    )
    
    
    (16,125
    )Investment expenses
    
    
    (16,942
    )
    
    
    (25,243
    )
    
    
    (18,090
    )Net investment income
    
    $
    163,842
    
    
    $
    72,375
    
    
    $
    143,418
 1
    
    Includes interest (expense) income of $(47), $25,609 and $16,893 in 2009, 2008
and 2007, respectively, on cash collateral pledged for derivatives and short-sale
obligations.  92




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
 Realized Investment Gains and Losses
  Years Ended December 31,2009
    
    
    2008
    
    
    2007Fixed income securities, available-for-sale:Gains
    
    $
    86,513
    
    
    $
    154,219
    
    
    $
    5,347Losses
    
    
    (3,507
    )
    
    
    (15,365
    )
    
    
    (3,994
    )Net
    
    
    83,006
    
    
    
    138,854
    
    
    
    1,353Fixed income securities, held-for-trading:Gains
    
    
    80,746
    
    
    
    
    
    
    
    249Losses
    
    
    (5,770
    )
    
    
    (90,891
    )
    
    
    (31,153
    )Net
    
    
    74,976
    
    
    
    (90,891
    )
    
    
    (30,904
    )Equity securities:Gains
    
    
    72,095
    
    
    
    2,814
    
    
    
    33,952Losses
    
    
    (109,762
    )
    
    
    (190,305
    )
    
    
    (28,562
    )Net
    
    
    (37,667
    )
    
    
    (187,491
    )
    
    
    5,390Investments at equity:Gains
    
    
    2,341
    
    
    
    
    
    
    
    10,959Losses
    
    
    (44
    )
    
    
    (1,550
    )
    
    
    Net
    
    
    2,297
    
    
    
    (1,550
    )
    
    
    10,959Derivatives and other invested assets:Gains
    
    
    87,916
    
    
    
    735,336
    
    
    
    270,819Losses
    
    
    (60,544
    )
    
    
    (62,379
    )
    
    
    (23,532
    )Net
    
    
    27,372
    
    
    
    672,957
    
    
    
    247,287Total realized investment gains and losses:Gains
    
    
    329,611
    
    
    
    892,369
    
    
    
    321,326Losses
    
    
    (179,627
    )
    
    
    (360,490
    )
    
    
    (87,241
    )Net
    
    $
    149,984
    
    
    $
    531,879
    
    
    $
    234,085
 Derivative Securities and Short-Sale
Obligations.
  93




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
 4.
    
    Fair Value Disclosures
          94




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
  December 31, 2009Quoted Prices in
    
    
    SignificantActive Markets
    
    
    Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TotalAssetsAvailable-for-sale fixed income securities:U.S. government and government agencies and
authorities
    
    $
    
    
    
    $
    87,765
    
    
    $
    
    
    
    $
    87,765States, municipalities and political subdivisions
    
    
    
    
    
    
    1,328,964
    
    
    
    
    
    
    
    1,328,964Other corporate
    
    
    
    
    
    
    102,817
    
    
    
    
    
    
    
    102,817Total available-for-sale fixed income
securities
    
    
    
    
    
    
    1,519,546
    
    
    
    
    
    
    
    1,519,546Fixed income securities, held-for-trading:Residential mortgage-backed
    
    
    
    
    
    
    89,746
    
    
    
    14,272
    
    
    
    104,018Other corporate
    
    
    
    
    
    
    217,341
    
    
    
    
    
    
    
    217,341Total held-for-trading fixed income
securities
    
    
    
    
    
    
    307,087
    
    
    
    14,272
    
    
    
    321,359Equity securities
    
    
    1,256,081
    
    
    
    28,021
    
    
    
    
    
    
    
    1,284,102Derivatives and other invested assets
    
    
    7,964
    
    
    
    47,516
    
    
    
    332,422
    
    
    
    387,902Short-term investments
    
    
    
    
    
    
    68,211
    
    
    
    
    
    
    
    68,211Total
    
    $
    1,264,045
    
    
    $
    1,970,381
    
    
    $
    346,694
    
    
    $
    3,581,120
 December 31, 2008Quoted Prices in
    
    
    SignificantActive Markets
    
    
    Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    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:Foreign governments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    
    
    
    150,437
    
    
    
    
    
    
    
    412,747Short-term investments
    
    
    
    
    
    
    549,937
    
    
    
    
    
    
    
    549,937Total
    
    $
    1,260,892
    
    
    $
    2,422,885
    
    
    $
    66,393
    
    
    $
    3,750,170
  95




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
  December 31, 2009
    
    
    December 31, 2008Fixed
    
    
    
    
    
    
    
    
    
    
    FixedIncome
    
    
    Equity
    
    
    
    
    
    
    Income
    
    
    EquitySecurities
    
    
    Securities
    
    
    Total
    
    
    Securities
    
    
    Securities
    
    
    TotalBalance, beginning of period
    
    $
    66,393
    
    
    $
    
    
    
    $
    66,393
    
    
    $
    2,500
    
    
    $
    
    
    
    $
    2,500Purchases
    
    
    19,830
    
    
    
    
    
    
    
    19,830
    
    
    
    68,148
    
    
    
    
    
    
    
    68,148Settlements
    
    
    (35,948
    )
    
    
    
    
    
    
    (35,948
    )
    
    
    
    
    
    
    
    
    
    
    Transfers from Level 3
    
    
    (47,611
    )
    
    
    
    
    
    
    (47,611
    )
    
    
    
    
    
    
    
    
    
    
    Transfers to Level 3
    
    
    
    
    
    
    347,494
    
    
    
    347,494
    
    
    
    
    
    
    
    
    
    
    
    Realized investment gains
(losses) included in net
income
    
    
    11,608
    
    
    
    (15,072
    )
    
    
    (3,464
    )
    
    
    (4,255
    )
    
    
    
    
    
    
    (4,255
    )Balance, end of period
    
    $
    14,272
    
    
    $
    332,422
    
    
    $
    346,694
    
    
    $
    66,393
    
    
    $
    
    
    
    $
    66,393Realized investment gains
(losses) relating to assets
held at period end
    
    $
    10,457
    
    
    $
    (15,072
    )
    
    $
    (4,615
    )
    
    $
    (2,086
    )
    
    $
    
    
    
    $
    (2,086
    )
  Fair Value Option
     96




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
 5.
    
    Unpaid Losses and Loss Adjustment Expenses
  Years Ended December 31,2009
    
    
    2008
    
    
    2007Gross unpaid losses and LAE, beginning of year
    
    $
    2,987,803
    
    
    $
    3,178,506
    
    
    $
    3,371,549Less: ceded unpaid losses and LAE
    
    
    684,239
    
    
    
    1,197,496
    
    
    
    1,355,253Net unpaid losses and LAE, beginning of year
    
    
    2,303,564
    
    
    
    1,981,010
    
    
    
    2,016,296Losses and LAE incurred related to:Current year
    
    
    565,976
    
    
    
    802,792
    
    
    
    816,823Prior years
    
    
    (39,864
    )
    
    
    20,075
    
    
    
    (63,854
    )Total losses and LAE incurred
    
    
    526,112
    
    
    
    822,867
    
    
    
    752,969Losses and LAE paid related to:Current year
    
    
    157,053
    
    
    
    228,298
    
    
    
    217,261Prior years
    
    
    632,768
    
    
    
    272,015
    
    
    
    570,994Total losses and LAE paid
    
    
    789,821
    
    
    
    500,313
    
    
    
    788,255Net unpaid losses and LAE, end of year
    
    
    2,039,855
    
    
    
    2,303,564
    
    
    
    1,981,010Add: ceded unpaid losses and LAE
    
    
    632,750
    
    
    
    684,239
    
    
    
    1,197,496Gross unpaid losses and LAE, end of year
    
    $
    2,672,605
    
    
    $
    2,987,803
    
    
    $
    3,178,506
  2009
    
    
    2008Ceded unpaid losses and LAE in the table above
    
    $
    632,750
    
    
    $
    684,239Reconciling items:Reinsurance receivable on paid losses and LAE
    
    
    9,705
    
    
    
    18,853Unamortized retroactive reinsurance recoverable
    
    
    250,242
    
    
    
    265,125Reinsurance recoverable on the consolidated balance sheets
    
    $
    892,697
    
    
    $
    968,217
      97




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
   6.
    
    Asbestos, Environmental and Other Latent Losses and Loss Adjustment Expenses
   Years Ended December 31,2009
    
    
    2008
    
    
    2007AsbestosGross unpaid losses and allocated LAE (ALAE), beginning of year
    
    $
    387,224
    
    
    $
    428,139
    
    
    $
    443,055Less: ceded unpaid losses and ALAE
    
    
    85,336
    
    
    
    94,497
    
    
    
    94,817Net unpaid losses and ALAE, beginning of year
    
    
    301,888
    
    
    
    333,642
    
    
    
    348,238Net losses and ALAE incurred
    
    
    2,795
    
    
    
    25,200
    
    
    
    24,342Less: Net losses and ALAE paid
    
    
    35,328
    
    
    
    56,954
    
    
    
    38,938Net unpaid losses and ALAE, end of year
    
    
    269,355
    
    
    
    301,888
    
    
    
    333,642Add: ceded unpaid losses and ALAE
    
    
    74,771
    
    
    
    85,336
    
    
    
    94,497Gross unpaid losses and ALAE, end of year
    
    $
    344,126
    
    
    $
    387,224
    
    
    $
    428,139
  Years Ended December 31,2009
    
    
    2008
    
    
    2007EnvironmentalGross unpaid losses and ALAE, beginning of year
    
    $
    107,948
    
    
    $
    117,768
    
    
    $
    110,636Less: ceded unpaid losses and ALAE
    
    
    28,969
    
    
    
    32,725
    
    
    
    37,103Net unpaid losses and ALAE, beginning of year
    
    
    78,979
    
    
    
    85,043
    
    
    
    73,533Net losses and ALAE incurred
    
    
    4,172
    
    
    
    9,400
    
    
    
    22,185Less: Net losses and ALAE paid
    
    
    12,356
    
    
    
    15,464
    
    
    
    10,675Net unpaid losses and ALAE, end of year
    
    
    70,795
    
    
    
    78,979
    
    
    
    85,043Add: ceded unpaid losses and ALAE
    
    
    22,507
    
    
    
    28,969
    
    
    
    32,725Gross unpaid losses and ALAE, end of year
    
    $
    93,302
    
    
    $
    107,948
    
    
    $
    117,768
  98




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
   Years Ended December 31,2009
    
    
    2008
    
    
    2007Other LatentGross unpaid losses and ALAE, beginning of year
    
    $
    28,217
    
    
    $
    34,237
    
    
    $
    32,463Less: ceded unpaid losses and ALAE
    
    
    7,959
    
    
    
    10,109
    
    
    
    10,705Net unpaid losses and ALAE, beginning of year
    
    
    20,258
    
    
    
    24,128
    
    
    
    21,758Net losses and ALAE incurred
    
    
    (261
    )
    
    
    1,615
    
    
    
    8,020Less: Net losses and ALAE paid
    
    
    3,885
    
    
    
    5,485
    
    
    
    5,650Net unpaid losses and ALAE, end of year
    
    
    16,112
    
    
    
    20,258
    
    
    
    24,128Add: ceded unpaid losses and ALAE
    
    
    5,358
    
    
    
    7,959
    
    
    
    10,109Gross unpaid losses and ALAE, end of year
    
    $
    21,470
    
    
    $
    28,217
    
    
    $
    34,237
 7.
    
    Reinsurance
  Years Ended December 31,2009
    
    
    2008
    
    
    2007Premiums written:Direct
    
    $
    830,193
    
    
    $
    995,905
    
    
    $
    1,205,545Assumed from other companies, pools and associations
    
    
    33,634
    
    
    
    23,664
    
    
    
    39,476Ceded to other companies, pools and associations
    
    
    (147,421
    )
    
    
    (148,417
    )
    
    
    (145,386
    )Net premiums written
    
    $
    716,406
    
    
    $
    871,152
    
    
    $
    1,099,635Premiums earned:Direct
    
    $
    897,541
    
    
    $
    1,114,356
    
    
    $
    1,260,828Assumed from other companies, pools and associations
    
    
    34,827
    
    
    
    24,942
    
    
    
    74,292Ceded to other companies, pools and associations
    
    
    (151,086
    )
    
    
    (141,270
    )
    
    
    (148,976
    )Premiums earned
    
    $
    781,282
    
    
    $
    998,028
    
    
    $
    1,186,144
  Years Ended December 31,2009
    
    
    2008
    
    
    2007Earned premiums ceded to reinsurers1
    
    $
    (151,086
    )
    
    $
    (141,270
    )
    
    $
    (148,976
    )Commissions earned on ceded reinsurance premiums
    
    
    32,890
    
    
    
    31,307
    
    
    
    25,774Claims incurred ceded to reinsurers
    
    
    67,967
    
    
    
    (44,415
    )2
    
    
    52,325Provision for uncollectible reinsurance
    
    
    (2,000
    )
    
    
    (7,700
    )
    
    
    (8,000
    )Net impact of ceded reinsurance transactions
    
    $
    (52,229
    )
    
    $
    (162,078
    )
    
    $
    (78,877
    )
 1
    
    For the years ended December 31, 2009, 2008 and 2007, accident and health
earned premiums ceded to reinsurers were $60,672, $42,070 and $18,602, respectively.2
    
    For the year ended December 31, 2008, claims incurred ceded to reinsurers includes
$75,866 of losses on commutations.  99




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
  At December 31,2009
    
    
    2008Reinsurance recoverable on unpaid losses and LAE
    
    $
    882,992
    
    
    $
    949,364Reinsurance receivable on paid losses and LAE
    
    
    9,705
    
    
    
    18,853Total reinsurance recoverable
    
    $
    892,697
    
    
    $
    968,217
   Corporate Aggregate Reinsurance
   Years Ended December 31,2009
    
    
    2008
    
    
    2007Investment income
    
    $
    (15,459
    )
    
    $
    (11,714
    )
    
    $
    (16,125
    )Losses and LAE
    
    
    (14,883
    )
    
    
    65,694
    
    
    
    (13,673
    )(Decrease) increase in income before income taxes
    
    $
    (576
    )
    
    $
    (77,408
    )
    
    $
    (2,452
    )
  Prospective Corporate Aggregate Reinsurance
  Years Ended December 31,2009
    
    
    2008
    
    
    2007Funds held interest charged to investment income
    
    $
    
    
    
    $
    (1,575
    )
    
    $
    (2,348
    )Less: losses and LAE
    
    
    
    
    
    
    80,521
    
    
    
    Decrease in income before income taxes
    
    $
    
    
    
    $
    (82,096
    )
    
    $
    (2,348
    )
   100




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##### Table of Contents



Retroactive Corporate Aggregate Reinsurance
  Years Ended December 31,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007Funds held interest charged to investment income
    
    $
    (15,459
    )
    
    $
    (10,139
    )
    
    $
    (13,777
    )Less: losses and LAE
    
    
    (14,883
    )
    
    
    (14,827
    )1
    
    
    (13,673
    )Increase (decrease) in income before income taxes
    
    $
    (576
    )
    
    $
    4,688
    
    
    $
    (104
    )
 1
    
    For the year ended December 31, 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 $10,172 of recurring deferred income amortization.  Years Ended December 31,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007Decrease in reinsurance recoverable due from reinsurers
    
    $
    
    
    
    $
    (20,000
    )
    
    $
    (3,577
    )Less: related premiums paid
    
    
    
    
    
    
    (8,186
    )
    
    
    (1,273
    )Decrease in income deferred during the year
    
    
    
    
    
    
    (11,814
    )
    
    
    (2,304
    )Amortization of deferred income
    
    
    (14,883
    )
    
    
    (18,950
    )
    
    
    (13,673
    )Decrease in deferred income
    
    
    (14,883
    )
    
    
    (30,764
    )
    
    
    (15,977
    )Deferred income on retroactive reinsurancebeginning of year
    
    
    121,277
    
    
    
    152,041
    
    
    
    168,018Deferred income on retroactive reinsuranceend of year
    
    $
    106,394
    
    
    $
    121,277
    
    
    $
    152,041
  101




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
     8.
    
    Long-Term Debt
   2012
    
    
    103.875
    %2013
    
    
    102.583
    %2014
    
    
    101.292
    %2015 and after
    
    
    100.000
    %
  102




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
   9.
    
    Income Taxes
  Years Ended December 31,2009
    
    
    2008
    
    
    2007Current
    
    $
    53,329
    
    
    $
    252,666
    
    
    $
    8,721Deferred
    
    
    10,301
    
    
    
    (164,063
    )
    
    
    131,266Total income tax expense
    
    $
    63,630
    
    
    $
    88,603
    
    
    $
    139,987
    At December 31,2009
    
    
    2008Deferred tax assets:Investments
    
    $
    105,335
    
    
    $
    103,025Unpaid losses and LAE
    
    
    61,977
    
    
    
    69,858Deferred income on retroactive reinsurance
    
    
    37,238
    
    
    
    42,447Unearned premiums
    
    
    21,879
    
    
    
    26,420Employee benefit plans
    
    
    11,770
    
    
    
    8,339Unrealized net depreciation of investments and currency translation
    
    
    
    
    
    
    5,951Other
    
    
    12,970
    
    
    
    15,509Deferred tax assets
    
    
    251,169
    
    
    
    271,549Deferred tax liabilities:Deferred policy acquisition costs
    
    
    16,009
    
    
    
    18,447Capitalized debt costs
    
    
    6,618
    
    
    
    7,231Unrealized net appreciation of investments and currency translation
    
    
    136,259
    
    
    
    Other
    
    
    5,873
    
    
    
    6,794Deferred tax liabilities
    
    
    164,759
    
    
    
    32,472Total net deferred tax assets
    
    $
    86,410
    
    
    $
    239,077
   103




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
  Years Ended December 31,2009
    
    
    2008
    
    
    2007% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofPre-tax
    
    
    
    
    
    
    Pre-tax
    
    
    
    
    
    
    Pre-taxAmount
    
    
    Income
    
    
    Amount
    
    
    Income
    
    
    Amount
    
    
    IncomeIncome taxes computed on
pre-tax operating income
    
    $
    92,936
    
    
    
    35.0
    %
    
    $
    147,655
    
    
    
    35.0
    %
    
    $
    143,454
    
    
    
    35.0
    %(Decrease) increase in income
taxes resulting from:Recognition of tax credits
associated with the sale of
an investment in affiliate
    
    
    
    
    
    
    
    
    
    
    (51,605
    )
    
    
    (12.2
    )
    
    
    
    
    
    
    Tax-exempt interest
    
    
    (19,207
    )
    
    
    (7.2
    )
    
    
    (3,380
    )
    
    
    (0.9
    )
    
    
    (44
    )
    
    
    Dividends received deduction
    
    
    (6,445
    )
    
    
    (2.4
    )
    
    
    (3,739
    )
    
    
    (0.8
    )
    
    
    (3,378
    )
    
    
    (0.8
    )Other, net
    
    
    (3,654
    )
    
    
    (1.4
    )
    
    
    (328
    )
    
    
    (0.1
    )
    
    
    (45
    )
    
    
    Total income tax expense
    
    $
    63,630
    
    
    
    24.0
    %
    
    $
    88,603
    
    
    
    21.0
    %
    
    $
    139,987
    
    
    
    34.2
    %
   10.
    
    Related Party Transactions
 Reinsurance
  At December 31,2009
    
    
    2008
    
    
    2007Statements of income:Net premiums written
    
    $
    (12,916
    )
    
    $
    (27,179
    )
    
    $
    (17,566
    )Premiums earned
    
    $
    (14,816
    )
    
    $
    (28,503
    )
    
    $
    14,876Losses and LAE
    
    $
    (32,666
    )
    
    $
    (38,281
    )
    
    $
    (2,836
    )Balance sheets:Premiums receivable
    
    $
    
    
    
    $
    (142
    )
    
    $
    644Reinsurance recoverable from affiliates
    
    $
    206,420
    
    
    $
    209,189
    
    
    $
    229,591Prepaid reinsurance premiums
    
    $
    4,958
    
    
    $
    6,903
    
    
    $
    8,246Unpaid losses and LAE
    
    $
    17,580
    
    
    $
    28,402
    
    
    $
    54,790Unearned premiums
    
    $
    28
    
    
    $
    73
    
    
    $
    92Accounts payable and other liabilities
    
    $
    1,868
    
    
    $
    2,813
    
    
    $
    5,589
  104




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
         105




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
 Investment Agreements
  Other Agreements
           106




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
 11.
    
    Employee Benefits
   Compensation  Retirement Benefits,
     107




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
 12.
    
    Commitments and Contingencies
  2010
    
    $
    12,8282011
    
    
    10,7512012
    
    
    7,7592013
    
    
    6,7802014
    
    
    6,1942015 and thereafter
    
    
    31,889Total minimum annual rentals
    
    $
    76,201
        108




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
 13.
    
    Dividend Restrictions, Statutory Information and Capitalization
    Years Ended December 31,2009
    
    
    2008
    
    
    2007Net income
    
    $
    153,979
    
    
    $
    484,003
    
    
    $
    191,699Policyholders surplus
    
    $
    1,628,159
    
    
    $
    1,410,612
    
    
    $
    1,639,751
   14.
    
    Segment Reporting
  Years Ended December 31,2009
    
    
    2008
    
    
    2007General liability
    
    $
    146,610
    
    
    $
    194,266
    
    
    $
    228,973Workers compensation
    
    
    188,246
    
    
    
    218,414
    
    
    
    257,971Commercial automobile
    
    
    118,976
    
    
    
    187,206
    
    
    
    210,490Property
    
    
    88,696
    
    
    
    164,397
    
    
    
    267,496Commercial multi-peril
    
    
    76,479
    
    
    
    79,938
    
    
    
    80,511Accident and health
    
    
    130,187
    
    
    
    117,653
    
    
    
    103,910Other
    
    
    32,088
    
    
    
    36,154
    
    
    
    36,793Total premiums earned
    
    $
    781,282
    
    
    $
    998,028
    
    
    $
    1,186,144
  109




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
  Years Ended December 31,2009
    
    
    2008
    
    
    2007Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioAccident year loss and LAE ratios:General liability
    
    $
    100,828
    
    
    
    68.8
    %
    
    $
    134,998
    
    
    
    69.5
    %
    
    $
    152,556
    
    
    
    66.6
    %Workers compensation
    
    
    151,945
    
    
    
    80.7
    %
    
    
    168,171
    
    
    
    77.0
    %
    
    
    196,816
    
    
    
    76.3
    %Commercial automobile
    
    
    92,682
    
    
    
    77.9
    %
    
    
    145,615
    
    
    
    77.8
    %
    
    
    144,308
    
    
    
    68.6
    %Property
    
    
    64,162
    
    
    
    72.3
    %
    
    
    204,469
    
    
    
    124.4
    %
    
    
    180,185
    
    
    
    67.4
    %Commercial multi-peril
    
    
    41,585
    
    
    
    54.4
    %
    
    
    45,986
    
    
    
    57.5
    %
    
    
    51,736
    
    
    
    64.3
    %Accident and health
    
    
    94,319
    
    
    
    72.4
    %
    
    
    83,279
    
    
    
    70.8
    %
    
    
    72,068
    
    
    
    69.4
    %Other
    
    
    20,455
    
    
    
    63.7
    %
    
    
    20,274
    
    
    
    56.1
    %
    
    
    19,154
    
    
    
    52.1
    %Total accident year losses and LAE
    
    
    565,976
    
    
    
    72.4
    %
    
    
    802,792
    
    
    
    80.4
    %
    
    
    816,823
    
    
    
    68.9
    %Prior years loss development
    
    
    (39,864
    )
    
    
    (5.1
    )
    
    
    20,075
    
    
    
    2.1
    
    
    
    (63,854
    )
    
    
    (5.4
    )Calendar year losses and LAE
    
    $
    526,112
    
    
    
    67.3
    %
    
    $
    822,867
    
    
    
    82.5
    %
    
    $
    752,969
    
    
    
    63.5
    %
  15.
    
    Quarterly Financial Data
  Three Months Ended(Unaudited)December 31,
    
    
    September 30,
    
    
    June 30,
    
    
    March 31,2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Premiums earned
    
    $
    191,539
    
    
    $
    230,358
    
    
    $
    182,032
    
    
    $
    232,978
    
    
    $
    200,281
    
    
    $
    262,882
    
    
    $
    207,430
    
    
    $
    271,810Investment income1,2
    
    $
    30,677
    
    
    $
    10,583
    
    
    $
    34,213
    
    
    $
    14,706
    
    
    $
    63,681
    
    
    $
    31,248
    
    
    $
    35,393
    
    
    $
    15,129Net realized investment gains
and losses3
    
    $
    7,659
    
    
    $
    204,533
    
    
    $
    210,394
    
    
    $
    162,369
    
    
    $
    23,002
    
    
    $
    9,709
    
    
    $
    (91,071
    )
    
    $
    155,268Losses and LAE
    
    $
    134,837
    
    
    $
    156,005
    
    
    $
    122,950
    
    
    $
    211,506
    
    
    $
    132,475
    
    
    $
    245,746
    
    
    $
    135,850
    
    
    $
    209,610Net income (loss)
    
    $
    20,915
    
    
    $
    189,253
    
    
    $
    154,761
    
    
    $
    69,728
    
    
    $
    57,252
    
    
    $
    (19,576
    )
    
    $
    (30,947
    )
    
    $
    93,401Combined ratio
    
    
    105.0
    %
    
    
    99.0
    %
    
    
    105.9
    %
    
    
    126.9
    %
    
    
    100.5
    %
    
    
    125.2
    %
    
    
    98.0
    %
    
    
    106.9
    %
 1
    
    Investment income includes pre-tax equity in earnings (losses) of investees
of $122, $(709) and $35,846 in 2009, 2008 and 2007, respectively.2
    
    The increase in investment income in the fourth quarter of 2009 as compared to
the fourth quarter of 2008 was primarily attributable to higher earnings from
investments at equity.3
    
    The decrease in net realized investment gains in the fourth quarter of 2009 as
compared to the fourth quarter of 2008 was primarily attributable to lower gains on
total return swaps.  110




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##### Table of Contents



ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A
    
    (T). CONTROLS AND PROCEDURES
 
 Evaluation of Disclosure Controls and Procedures
  
 Managements Report on Internal Control over Financial Reporting
      
 ITEM 9B.
    
    OTHER INFORMATION
   111




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##### Table of Contents



PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
 Directors and Executive Officers
  Name
    
    Age
    
    PositionV. Prem Watsa
    
    
    59
    
    
    ChairmanDouglas M. Libby
    
    
    58
    
    
    President, Chief Executive Officer and DirectorMary Jane Robertson
    
    
    56
    
    
    Executive Vice President, Chief Financial
Officer, Treasurer and DirectorAlan D. Horn1,2,4
    
    
    58
    
    
    DirectorAnthony F. Griffiths1,2,3
    
    
    79
    
    
    DirectorRobert J. Gunn1,2
    
    
    64
    
    
    DirectorBrandon W. Sweitzer1
    
    
    67
    
    
    Director
 1
    
    Audit committee member.2
    
    Compensation committee member.3
    
    Chairman of the compensation committee.4
    
    Chairman of the audit committee. V. Prem Watsa
 Douglas M. Libby
 Mary Jane Robertson
 Alan D. Horn
 Anthony F. Griffiths
 Robert J. Gunn
  112




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##### Table of Contents



Brandon W. Sweitzer
 
 Corporate Governance
  
 Audit Committee and Audit Committee Financial Expert
   
 Compensation Committee
  
 Compensation of Directors
  
 Code of Ethics
  
 ITEM 11.
    
    EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
   113




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##### Table of Contents



ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Years Ended December 31,(dollars in thousands)
    
    2009
    
    
    2008Audit fees
    
    $
    1,309.2
    
    
    $
    1,385.0Audit-related fees
    
    
    643.3
    
    
    
    664.0Tax fees
    
    
    85.4
    
    
    
    14.3All other fees
    
    
    3.1
    
    
    
    2.5Total fees billed by principal accountants
    
    $
    2,041.0
    
    
    $
    2,065.8
 
 Audit Fees
  
 Audit-Related Fees
  
 Tax Fees
  
 All Other Fees
  
 Audit Committee Pre-Approval Policies and Procedures
  
 PART IV
 
 ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
 Financial Statement Schedules
   114




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##### Table of Contents



Exhibits
 ExhibitNumber
    
    Exhibit
    
    Location*3.1
    
    
    Certificate of Incorporation
    
    Exhibit 3.1 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.3.2
    
    
    Amended and Restated By-Laws
    
    Exhibit 3.2 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.4.1
    
    
    Indenture between the Company and the Bank
of New York dated as of May 7, 2007
    
    Exhibit 4.2 to the form 8-K of the
Company filed on May 10, 200710.1
    
    
    Investment Agreement among Hamblin Watsa,
Fairfax and North River effective as of
January 8, 2004
    
    Exhibit 10.1 to the Form 10-K of the
Company for the year ended December
31, 2004, filed on March 7, 2005.10.2
    
    
    Investment Agreement among Hamblin Watsa,
Fairfax and CF Insurance effective as of
January 8, 2004
    
    Exhibit 10.2 to Amendment No. 3 to
the Registration Statement on Form
S-4 (No. 333-107722) of the Company
filed on February 24, 2004.10.3
    
    
    Investment Agreement among Hamblin Watsa,
Fairfax and Seneca Specialty effective as
of January 1, 2002
    
    Exhibit 10.3 to the Form 10-K of the
Company for the year ended December
31, 2004, filed on March 7, 2005.10.4
    
    
    Master Repurchase Agreement between North
River and Fairfax effective as of January
8, 2004
    
    Exhibit 10.4 to Amendment No. 3 to
the Registration Statement on Form
S-4 (No. 333-107722) of the Company
filed on February 24, 2004.10.5
    
    
    Master Repurchase Agreement between CF
Insurance and Fairfax effective as of
January 8, 2004
    
    Exhibit 10.5 to Amendment No. 3 to
the Registration Statement on Form
S-4 (No. 333-107722) of the Company
filed on February 24, 2004.10.6
    
    
    Investment Management Agreement among
Hamblin Watsa, Fairfax and the Company
effective as of December 21, 2004
    
    Exhibit 10.6 to the Form 10-K of the
Company for the year ended December
31, 2004, filed on March 7, 2005.10.7
    
    
    Investment Agreement among Hamblin Watsa,
Fairfax and US Fire effective as of October
1, 2002
    
    Exhibit 10.7 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.10.8
    
    
    Investment Agreement among Hamblin Watsa,
Fairfax and Seneca effective as of January
1, 2002
    
    Exhibit 10.8 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.10.9
    
    
    Investment Agreement among Hamblin Watsa,
Fairfax and CF Indemnity effective as of
January 1, 2002
    
    Exhibit 10.9 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.10.10
    
    
    Investment Agreement among Hamblin Watsa,
Fairfax and CF Specialty effective as of
January 1, 2002
    
    Exhibit 10.10 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.10.11
    
    
    Intentionally left blank10.13
    
    
    Intercompany Tax Allocation Agreement
between Fairfax Inc. and US Fire and CF
Indemnity and Seneca effective as of
December 15, 2000
    
    Exhibit 10.13 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.10.15
    
    
    Master Repurchase Agreement between CF
Indemnity and Fairfax effective as of July
1, 2000
    
    Exhibit 10.15 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.10.16
    
    
    Master Repurchase Agreement between US Fire
and Fairfax effective as of July 1, 2000
    
    Exhibit 10.16 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.10.23
    
    
    Put Agreement between US Fire, ORC Re
Limited and Fairfax effective as of June
28, 2002
    
    Exhibit 10.23 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.10.25
    
    
    Intentionally left blank10.27
    
    
    Intentionally left blank10.28
    
    
    Intentionally left blank10.30
    
    
    Blended Aggregate Stop Loss Reinsurance
Agreement between the Company and ORC Re
Limited effective as of January 1, 2000
    
    Exhibit 10.30 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.10.37
    
    
    Amendment Number 1 to the Investment
Agreement among Hamblin Watsa, Fairfax and
CF Specialty effective as of January 1,
2005
    
    Exhibit 10.37 to the Form 10-Q of the
Company for the period ended
September 30, 2005, filed on October
28, 2005.
  115




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##### Table of Contents



ExhibitNumber
    
    Exhibit
    
    Location*10.38
    
    
    Amendment Number 1 to the Investment
Agreement among Hamblin Watsa, Fairfax and
Seneca Specialty effective as of January 1,
2005
    
    Exhibit 10.38 to the Form 10-Q of the
Company for the period ended
September 30, 2005, filed on October
28, 2005.10.40
    
    
    Amendment Number 1 to the Investment
Agreement among Hamblin Watsa, Fairfax and
North River effective as of January 1, 2005
    
    Exhibit 10.40 to the Form 10-Q of the
Company for the period ended March
31, 2007, filed on May 3, 2007.10.41
    
    
    Amendment Number 1 to the Investment
Agreement among Hamblin Watsa, Fairfax and
CF Insurance Company effective as of
January 1, 2005
    
    Exhibit 10.41 to the Form 10-Q of the
Company for the period ended March
31, 2007, filed on May 3, 2007.10.42
    
    
    Amendment Number 1 to the Investment
Agreement among Hamblin Watsa, Fairfax and
US Fire Company effective as of April 1,
2007
    
    Exhibit 10.42 to the Form 10-Q of the
Company for the period ended June 30,
2007, filed on August 3, 2007.10.43
    
    
    Amendment Number 1 to the Investment
Agreement among Hamblin Watsa, Fairfax and
CF Indemnity effective as of April 1, 2007
    
    Exhibit 10.43 to the Form 10-Q of the
Company for the period ended June 30,
2007, filed on August 3, 2007.10.45
    
    
    Fairfax Inc. and Crum & Forster Holdings
Corp. Inter-Company Tax Allocation
Agreement effective as of January 1, 2007
    
    Exhibit 10.45 to the Form 10-Q of the
Company for the period ended
September 30, 2007, filed on November
1, 2007.10.46
    
    
    Amendment Number 1 to the Investment
Agreement among Hamblin Watsa, Fairfax and
Seneca effective as of January 1, 2005.
    
    Exhibit 10.46 to the Form 10-K of the
Company for the year ended December
31, 2008, filed on February 27, 2009.10.47
    
    
    Intercompany Tax Allocation Agreement
effective as of January 1, 2009 among Crum
& Forster Holdings Corp., US Fire, North
River, CF Insurance Company, CF Indemnity,
CF Specialty, Excelsior Claims
Administrators, Inc., Seneca Risk Services,
Inc., Seneca Specialty, and Fairmont
Specialty Insurance Managers, Inc.
    
    Filed herewith12.1
    
    
    Statement Regarding Calculation of Ratio of
Consolidated Earnings to Consolidated Fixed
Charges
    
    Filed herewith.14.1
    
    
    Code of Ethics for Senior Financial Officers
    
    Exhibit 14.1 to the Form 10-K of the
Company for the year ended December
31, 2004, filed on March 7, 2005.24.1
    
    
    Power of Attorney
    
    Included on the signature page hereof.31.1
    
    
    Certification of President and Chief
Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
    
    Filed herewith.31.2
    
    
    Certification of Executive Vice President,
Chief Financial Officer and Treasurer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    Filed herewith.32.1
    
    
    Certification of President and Chief
Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
    
    Filed herewith.32.2
    
    
    Certification of Executive Vice President,
Chief Financial Officer and Treasurer
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    Filed herewith.
 *
    
    Exhibits not filed herewith are incorporated herein by reference to documents
previously filed with the Securities and Exchange Commission.  116




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##### Table of Contents



SIGNATURES
  CRUM & FORSTER HOLDINGS CORP.
(Registrant)Date: February 26, 2010
    By:
    /s/  Douglas M. LibbyDouglas M. LibbyPresident, Chief Executive Officer and DirectorDate: February 26, 2010
    By:
    /s/  Mary Jane RobertsonMary Jane RobertsonExecutive Vice President, Chief Financial
Officer,
 Treasurer and Director 
 Power of Attorney
   Signature
    
    Title
    
    DateBy:
    /s/ V. Prem Watsa

V. Prem Watsa
    
    Chairman of the Board
    
    February 26, 2010By:
    /s/ Douglas M. Libby

Douglas M. Libby
    
    President, Chief Executive Officer and Director
    
    February 26, 2010By:
    /s/ Mary Jane Robertson

Mary Jane Robertson
    
    Executive Vice President, Chief Financial
Officer,
 Treasurer and Director
    
    February 26, 2010By:
    /s/ Alan D. Horn

Alan D. Horn
    
    Director
    
    February 26, 2010By:
    /s/ Anthony F. Griffiths

Anthony F. Griffiths
    
    Director
    
    February 26, 2010By:
    /s/ Robert J. Gunn

Robert J. Gunn
    
    Director
    
    February 26, 2010By:
    /s/ Brandon W. Sweitzer

Brandon W. Sweitzer
    
    Director
    
    February 26, 2010
  117




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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS AND RELATED FINANCIAL STATEMENT SCHEDULES
 PageNumberConsolidated Financial Statements
    
    
    68Financial Statement SchedulesReport of Independent Registered Public Accounting Firm on Financial Statement Schedules
    
    
    119Schedule ISummary of Investments Other Than Investments in Related Parties
    
    
    120Schedule IICondensed Balance Sheets of Crum & Forster Holdings Corp. at December 31,
2009 and 2008 (Parent Company Only)
    
    
    121Schedule IICondensed Statements of Income of Crum & Forster Holdings Corp. for the
Years Ended December 31, 2009, 2008 and 2007 (Parent Company Only)
    
    
    122Schedule IICondensed Statements of Cash Flows of Crum & Forster Holdings Corp. for the
Years Ended December 31, 2009, 2008 and 2007 (Parent Company Only)
    
    
    123Schedule IINotes to Condensed Financial Statements
    
    
    124Schedule IIISupplementary Insurance Information
    
    
    *Schedule IVReinsurance
    
    
    *Schedule VValuation and Qualifying Accounts
    
    
    125Schedule VISupplementary Insurance Information
    
    
    *
 *
    
    Schedule omitted as required information is contained within the consolidated financial
statements included in Item 8. Financial Statements and Supplementary Data.  118




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULES
    
  119




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##### Table of Contents



SCHEDULE I
 CRUM & FORSTER HOLDINGS CORP.
SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
(Dollars in thousands)
 At December 31, 2009Cost or
    
    
    
    
    
    
    Amount at whichAmortized
    
    
    Estimated
    
    
    Shown in theCost
    
    
    Fair Value1
    
    
    Balance SheetFixed income securities:Available-for-sale:United States government and government agencies
and authorities
    
    $
    81,282
    
    
    $
    87,765
    
    
    $
    87,765States, municipalities and political subdivisions
    
    
    1,185,380
    
    
    
    1,328,964
    
    
    
    1,328,964Other
    
    
    80,483
    
    
    
    102,817
    
    
    
    102,817Total fixed income securities available-for-sale
    
    
    1,347,145
    
    
    
    1,519,546
    
    
    
    1,519,546Fixed income securities, held-for-trading:
    
    
    321,359
    
    
    
    321,359
    
    
    
    321,359Total fixed income securities
    
    
    1,668,504
    
    
    
    1,840,905
    
    
    
    1,840,905Equity securities  common stocks
    
    
    1,007,805
    
    
    
    1,214,205
    
    
    
    1,284,102Investments at equity
    
    
    55,020
    
    
    
    55,020
    
    
    
    167,331Derivatives and other invested assets
    
    
    47,517
    
    
    
    47,517
    
    
    
    387,902Short term investments
    
    
    68,211
    
    
    
    68,211
    
    
    
    68,211Total investments
    
    $
    2,847,057
    
    
    $
    3,225,858
    
    
    $
    3,748,451
 1
    
    Excludes investments in related parties at fair value of $522,593 at December 31,
2009.  120




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##### Table of Contents



SCHEDULE II
 CRUM & FORSTER HOLDINGS CORP. (PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF CRUM & FORSTER HOLDINGS CORP.

BALANCE SHEETS
(Dollars in thousands)
 At December 31,2009
    
    
    2008ASSETSCash and cash equivalents
    
    $
    2,461
    
    
    $
    3,123Short-term investments at cost, which approximates fair value
    
    
    
    
    
    
    5,289Investments in and advances to/from consolidated subsidiaries
    
    
    1,834,581
    
    
    
    1,485,189Current income taxes
    
    
    928
    
    
    
    3,607Other assets
    
    
    4,660
    
    
    
    5,260Total assets
    
    $
    1,842,630
    
    
    $
    1,502,468LIABILITIESAccounts payable and other liabilities
    
    $
    7,423
    
    
    $
    19,612Deferred income taxes
    
    
    5,366
    
    
    
    5,922Long-term debt
    
    
    312,114
    
    
    
    310,502Total liabilities
    
    
    324,903
    
    
    
    336,036SHAREHOLDER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
    
    
    256,859
    
    
    
    (7,455
    )Retained earnings
    
    
    519,875
    
    
    
    432,894Total shareholders equity
    
    
    1,517,727
    
    
    
    1,166,432Total liabilities and shareholders equity
    
    $
    1,842,630
    
    
    $
    1,502,468
 The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto.
  121




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##### Table of Contents



SCHEDULE II
 CRUM & FORSTER HOLDINGS CORP. (PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF CRUM & FORSTER HOLDINGS CORP.
STATEMENTS OF INCOME
(Dollars in thousands)
 Years Ended December 31,2009
    
    
    2008
    
    
    2007REVENUESEquity in earnings of subsidiaries
    
    $
    222,978
    
    
    $
    357,610
    
    
    $
    326,962Investment (loss) income
    
    
    (80
    )
    
    
    310
    
    
    
    1,592Realized investment gains
    
    
    
    
    
    
    
    
    
    
    8,612Total revenues
    
    
    222,898
    
    
    
    357,920
    
    
    
    337,166EXPENSESInterest expense
    
    
    27,818
    
    
    
    27,885
    
    
    
    29,850Costs related to early retirement of debt
    
    
    
    
    
    
    392
    
    
    
    21,187Other expense, net
    
    
    4,406
    
    
    
    10,199
    
    
    
    11,135Total expenses
    
    
    32,224
    
    
    
    38,476
    
    
    
    62,172Income before income taxes
    
    
    190,674
    
    
    
    319,444
    
    
    
    274,994Income tax benefit
    
    
    (11,307
    )
    
    
    (13,362
    )
    
    
    (18,188
    )NET INCOME
    
    $
    201,981
    
    
    $
    332,806
    
    
    $
    293,182
 The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto.
  122




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SCHEDULE II
 CRUM & FORSTER HOLDINGS CORP. (PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF CRUM & FORSTER HOLDINGS CORP.
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
 Years Ended December 31,2009
    
    
    2008
    
    
    2007OPERATING ACTIVITIESNet income
    
    $
    201,981
    
    
    $
    332,806
    
    
    $
    293,182Adjustments to reconcile net income to net cash from operating activities:Equity in earnings of subsidiaries, net of dividends and other payments
to/receipts from subsidiaries1
    
    
    (84,578
    )
    
    
    (5,108
    )
    
    
    (213,135
    )Realized investment gains
    
    
    
    
    
    
    
    
    
    
    (8,612
    )Amortization and accretion
    
    
    2,243
    
    
    
    2,108
    
    
    
    1,958Deferred income tax expense
    
    
    
    
    
    
    
    
    
    
    66,321Other non-cash net income adjustments
    
    
    
    
    
    
    170
    
    
    
    8,259Changes in:Other assets
    
    
    2,159
    
    
    
    1,495
    
    
    
    (2,129
    )Accounts payable and other liabilities
    
    
    (12,756
    )
    
    
    4,200
    
    
    
    (32,211
    )Net cash provided by operating activities
    
    
    109,049
    
    
    
    335,671
    
    
    
    113,633INVESTING ACTIVITIESPurchases of short-term investments
    
    
    (5,580
    )
    
    
    (30,701
    )
    
    
    (9,652
    )Proceeds from sales of short-term investments
    
    
    10,869
    
    
    
    35,064
    
    
    
    Purchases of other invested assets
    
    
    
    
    
    
    
    
    
    
    (13,143
    )Proceeds from sales of other invested assets
    
    
    
    
    
    
    
    
    
    
    28,510Net cash provided by (used in) investing activities
    
    
    5,289
    
    
    
    4,363
    
    
    
    5,715FINANCING ACTIVITIESDividends paid to shareholder
    
    
    (115,000
    )
    
    
    (335,202
    )
    
    
    (128,825
    )Repayment of 10 3/8% senior notes
    
    
    
    
    
    
    (4,270
    )
    
    
    (295,730
    )Issuance of 7 3/4% senior notes
    
    
    
    
    
    
    
    
    
    
    330,000New debt issuance costs
    
    
    
    
    
    
    
    
    
    
    (23,912
    )Net cash used in financing activities
    
    
    (115,000
    )
    
    
    (339,472
    )
    
    
    (118,467
    )Net change in cash and cash equivalents
    
    
    (662
    )
    
    
    562
    
    
    
    881Cash and cash equivalents, beginning of year
    
    
    3,123
    
    
    
    2,561
    
    
    
    1,680Cash and cash equivalents, end of year
    
    $
    2,461
    
    
    $
    3,123
    
    
    $
    2,561SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest
    
    $
    25,575
    
    
    $
    25,797
    
    
    $
    24,907Cash refund received for income taxes
    
    $
    (13,418
    )
    
    $
    (13,994
    )
    
    $
    (40,487
    )SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIESFixed income securities transferred to parent as payment for income taxes
    
    $
    54,008
    
    
    $
    
    
    
    $
    In-kind dividend payment to parent in the form of fixed income securities
    
    $
    
    
    
    $
    158,798
    
    
    $
    Note received from parent in partial settlement of the Companys tax net operating losses
    
    $
    
    
    
    $
    
    
    
    $
    41,882Note received from parent in settlement of the sale of a common stock investment
    
    $
    
    
    
    $
    
    
    
    $
    12,993In-kind dividend payment to parent representing cancellation of the aforementioned notes
received from parent in 2007
    
    $
    
    
    
    $
    
    
    
    $
    54,875
 1
    
    Includes cash dividends received from subsidiaries of $138,400, $352,502 and
$129,195 in 2009, 2008 and 2007. The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto.
  123




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SCHEDULE II
 CRUM & FORSTER HOLDINGS CORP. (PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL STATEMENTS OF CRUM & FORSTER HOLDINGS CORP.
(Dollars in thousands)
 1.

    
    The accompanying condensed financial statements should be read in conjunction with the notes
to consolidated financial statements of Crum & Forster Holdings Corp. and subsidiaries
included in Item 8. Financial Statements and Supplementary Data.
 2.

    
    The Companys ability to satisfy its corporate obligations is primarily dependent on the
dividend paying capacity of its subsidiaries. In 2009, 2008 and 2007, the insurance
subsidiaries paid dividends totaling $138,400, $511,300 and $138,200, respectively, to the
Company, including an extraordinary dividend of $350,000 in 2008, for which the Company
received prior regulatory approval. The maximum dividends that can be paid by the insurance
companies to the Company in 2010, without prior regulatory approval, are $163,776.
  124




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##### Table of Contents



SCHEDULE V
 CRUM & FORSTER HOLDINGS CORP.
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
 ChargesBalance at
    
    
    to Costs
    
    
    Charged to
    
    
    
    
    
    
    Balance atBeginning of
    
    
    and
    
    
    Other
    
    
    
    
    
    
    End ofYear
    
    Description
    
    Year
    
    
    Expenses
    
    
    Accounts
    
    
    Deductions
    
    
    Year2009
    
    Reserve for uncollectible premiums
    
    $
    20,191
    
    
    
    (496
    )1
    
    
    (1,327
    )2
    
    
    (868
    )3
    
    $
    17,5002008
    
    Reserve for uncollectible premiums
    
    $
    22,535
    
    
    
    
    
    
    
    (100
    )2
    
    
    (2,244
    )3
    
    $
    20,1912007
    
    Reserve for uncollectible premiums
    
    $
    25,331
    
    
    
    
    
    
    
    (1,000
    )2
    
    
    (1,796
    )3
    
    $
    22,5352009
    
    Reserve for uncollectible reinsurance
    
    $
    55,999
    
    
    
    2,000
    4
    
    
    
    
    
    
    (3,771
    )5
    
    $
    54,2282008
    
    Reserve for uncollectible reinsurance
    
    $
    50,021
    
    
    
    7,700
    4
    
    
    
    
    
    
    (1,722
    )5
    
    $
    55,9992007
    
    Reserve for uncollectible reinsurance
    
    $
    42,777
    
    
    
    8,000
    4
    
    
    
    
    
    
    (756
    )5
    
    $
    50,0212009
    
    Reserve for uncollectible loss deductibles
    
    $
    8,588
    
    
    
    854
    6
    
    
    
    
    
    
    (848
    )7
    
    $
    8,5942008
    
    Reserve for uncollectible loss deductibles
    
    $
    12,780
    
    
    
    (4,192
    )6
    
    
    
    
    
    
    
    
    
    $
    8,5882007
    
    Reserve for uncollectible loss deductibles
    
    $
    8,811
    
    
    
    4,008
    6
    
    
    
    
    
    
    (39
    )7
    
    $
    12,780
 1
    
    Represents decreases to the reserve for uncollectible premiums charged against
operating expenses.2
    
    Represents decreases to the reserve for uncollectible premiums charged against
premiums earned.3
    
    Represents uncollectible premiums written off to the reserve.4
    
    Represents increases to the reserve for uncollectible reinsurance charged to losses
and LAE.5
    
    Represents uncollectible reinsurance recoverable balances written off to the reserve.6
    
    Represents increases (decreases) to the reserve for uncollectible loss deductibles
charged to losses and LAE.7
    
    Represents uncollectible loss deductibles written off to the reserve.  125