##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 
  Form 10-K/A
 Amendment
No. 1
 þ
    
    ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934oro
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended:
    
    Commission File Number:December 31, 2004
    
    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
Incorporation or Organization)
    
    (I.R.S. Employer Identification Number)
 Crum & Forster Holdings Corp.
305 Madison Avenue, Morristown, New Jersey 07962
(973) 490-6600(Address, including zip code, and telephone number,
including area code, of registrants principal executive offices) Securities registered pursuant to Section 12(b) of the Act:  Securities registered pursuant to Section 12(g) of the Act:  Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to the filing requirements for the past 90 days.
     Yes þ      No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.           þ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
                                              Yes o            No þ State the aggregate market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was last sold, or the average bid and
asked price of such common equity, as of the last business day of the registrants most recently
completed second fiscal quarter.                Not applicable Indicate the number of shares outstanding of each of the registrants classes of common stock, as
of the latest practicable date: Class
    
    Number of Shares Outstanding at February 28, 2005Common Stock, $.01 Par Value
    
    100
 Documents Incorporated by Reference None




---



##### 



Amendment No. 1
Explanatory Note Crum & Forster Holdings Corp. (the Company) is filing Amendment No. 1 to its Annual Report on
Form 10-K for the year ended December 31, 2004 to amend Item 15, Exhibits and Financial Statement
Schedules, to include audited financial statements of Northbridge Financial Corporation as of and
for the years ended December 31, 2004 and 2003, in accordance with Rule 3-09 of Regulation S-X.
Item 15 is also being amended to include reference to the Northbridge Financial Corporation
financial statements and certifications under Sections 302 and 906 of the Sarbanes-Oxley Act of
2002 are filed herewith. No other portions of the 10-K are being amended. 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)(1) and (2). Financial Statements and Financial Statement Schedules Index to Financial Statements and Related Financial Statement Schedules PageNumberConsolidated Financial Statements
    
    
    +Financial Statements of Northbridge Financial Corporation
    
    
    7Financial Statement SchedulesReport of Independent Registered Public Accounting Firm on Financial Statement Schedules
    
    
    +Schedule I
    
    Summary of Investments Other Than Investments in Related Parties
    
    
    +Schedule II
    
    Condensed
Balance Sheets of Crum & Forster Holdings Corp. at
December 31, 2004 and 2003 (Parent Company Only)
    
    
    +Schedule II
    
    Condensed Statements of Income of Crum & Forster
Holdings Corp. for the Years Ended December 31, 2004, 2003 and 2002 (Parent Company Only)
    
    
    +Schedule II
    
    Condensed Statements of Cash Flows of Crum & Forster Holdings Corp. for the Years Ended December 31, 2004, 2003 and 2002 (Parent Company Only)
    
    
    +Schedule III
    
    Supplementary Insurance Information
    
    
    *Schedule IV
    
    Reinsurance
    
    
    *Schedule V
    
    Valuation and Qualifying Accounts
    
    
    +Schedule VI
    
    Supplementary Insurance Information
    
    
    *
 
 +
    
    Previously filed.*
    
    Schedule omitted as required information is contained within the consolidated financial
statements included in Item 8. Financial Statements and
Supplementary Data of the Form 10-K. (a)(3). 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 Crum & Forster Funding
Corp. and The Bank of New York effective as
of June 5, 2003
    
    Exhibit 4.1 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.4.2
    
    First Supplemental Indenture among the
Company, Crum & Forster Funding Corp. and
The Bank of New York effective as of June
30, 2003
    
    Exhibit 4.2 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.4.3
    
    Registration Rights Agreement between the
Company and J.P. Morgan Securities Inc. for
itself and on behalf of initial purchasers
effective as of June 5, 2003
    
    Exhibit 4.3 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.
 2




---



##### 



ExhibitNumber
    
    Exhibit
    
    Location*4.4
    
    Interest Escrow Agreement effective as of
June 30, 2003 between the Company and The
Bank of New York
    
    Exhibit 4.4 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.4.5
    
    Initial Escrow Agreement effective as of
June 5, 2003 between the Company and The
Bank of New York
    
    Exhibit 4.5 to Amendment No. 3 to the
Registration Statement on Form S-4
(No. 333-107722) of the Company filed
on February 24, 2004.10.1
    
    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 fiscal 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 fiscal 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 fiscal 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 blank10.12
    
    Tax Allocation Agreement between Fairfax
Inc. and the Company effective as of June
5, 2003
    
    Exhibit 10.12 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.10.13
    
    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, 2003.10.14
    
    Tax Allocation Agreement among the Company,
Fairfax Inc., Odyssey Re Holdings Corp.,
RiverStone Group, LLC and TIG Holdings,
Inc. effective as of January 1, 2000
    
    Exhibit 10.14 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, 2003.10.17
    
    Intentionally left blank10.18
    
    Administrative Services Agreement between
US Fire and Fairfax Information Technology
Services, Inc. effective as of January 1,
2001
    
    Exhibit 10.18 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.10.19
    
    Services Agreement between TIG Insurance
Company and US Fire effective as of January
1, 2000
    
    Exhibit 10.19 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.10.20
    
    Services Agreement between TIG Insurance
Company and CF Indemnity effective as of
January 1, 2000
    
    Exhibit 10.20 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.
 3




---



##### 



ExhibitNumber
    
    Exhibit
    
    Location*10.21
    
    Claims Service and Management Agreement
between US Fire and RiverStone Claims
Management LLC effective as of July 1, 2000
    
    Exhibit 10.21 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.10.22
    
    Claims Service and Management Agreement
between US Fire and International Insurance
Company effective as of October 1, 2001
    
    Exhibit 10.22 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, 2003.10.24
    
    Standby Credit Facility Note between the
Company and Fairfax effective as of June
30, 2003
    
    Exhibit 10.24 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.10.25
    
    Exchange Agreement between Fairfax Inc. and
the Company effective as of June 5, 2003
    
    Exhibit 10.25 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.10.26#
    
    Supplemental Individual Retirement Plan of
US Fire effective as of August 13, 1998
    
    Exhibit 10.26 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.10.27#
    
    Employment Agreement of Mary Jane Robertson
effective as of January 1, 2003
    
    Exhibit 10.27 to Amendment No. 1 to
the Registration Statement on Form
S-4 (No. 333-107722) of the Company
filed on September 22, 2003.10.28#
    
    Employment Agreement of Nikolas
Antonopoulos effective as of January 1,
2003
    
    Exhibit 10.28 to Amendment No. 1 to
the Registration Statement on Form
S-4 (No. 333-107722) of the Company
filed on September 22, 2003.10.29#
    
    Employment Agreement of Bruce Esselborn
effective as of October 1, 1999
    
    Exhibit 10.29 to Amendment No. 1 to
the Registration Statement on Form
S-4 (No. 333-107722) of the Company
filed on September 22, 2003.10.30
    
    Aggregate Stop Loss Reinsurance Treaty
between the Company and ORC Re Limited
effective as of January 1, 2001
    
    Exhibit 10.30 to the Registration
Statement on Form S-4 (No.
333-107722) of the Company filed on
August 7, 2003.10.31#
    
    Retirement and Consulting Agreement of
Bruce Esselborn effective as of June 15,
2004
    
    Exhibit 10.31 to the Form 10-Q of the
Company for the period ended
September 30, 2004, filed on November
5, 2004.10.32#
    
    Amended and Restated Employment Agreement
of Nikolas Antonopoulos effective as of
January 1, 2005
    
    Exhibit 10.32 to the
Form 10-K of the Company for the fiscal year ended
December 31, 2004, filed on March 7, 2005.10.33#
    
    Amended and Restated Employment Agreement
of Mary Jane Robertson effective as of
January 1, 2005
    
    Exhibit 10.33 to the
Form 10-K of the Company for the fiscal year ended
December 31, 2004, filed on March 7, 2005.10.34#
    
    Employment Agreement of Joseph Braunstein
effective as of January 1, 2005
    
    Exhibit 10.34 to the
Form 10-K of the Company for the fiscal year ended
December 31, 2004, filed on March 7, 2005.10.35#
    
    Crum & Forster Holdings Corp. Long Term
Incentive Plan
    
    Exhibit 10.35 to the
Form 10-K of the Company for the fiscal year ended
December 31, 2004, filed on March 7, 2005.12.1
    
    Statement Regarding Calculation of Ratio of
Consolidated Earnings to Consolidated Fixed
Charges
    
    Exhibit 12.1 to the
Form 10-K of the Company for the fiscal year ended
December 31, 2004, filed on March 7, 2005.14.1
    
    Code of Ethics for Senior Financial Officers
    
    Exhibit 14.1 to the
Form 10-K of the Company for the fiscal year ended
December 31, 2004, filed on March 7, 2005.21.1
    
    List of the Companys Subsidiaries
    
    Exhibit 21.1 to the
Form 10-K of the Company for the fiscal year ended
December 31, 2004, filed on March 7, 2005.24.1
    
    Powers of Attorney
    
    Exhibit 24.1 to the
Form 10-K of the Company for the fiscal year ended
December 31, 2004, filed on March 7, 2005.31.1+
    
    Certification of President and Chief
Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
    
    Filed herewith.
 4




---



##### 



ExhibitNumber
    
    Exhibit
    
    Location*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.+
    
    Filed herewith.#
    
    Management contract or compensatory plan or
arrangement. 5




---



##### 



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. CRUM & FORSTER HOLDINGS CORP.
(Registrant)Date: June 28, 2005
    By:
    /s/ Nikolas AntonopoulosNikolas AntonopoulosPresident and Chief Executive Officer Date: June 28, 2005
    By:
    /s/ Mary Jane RobertsonMary Jane RobertsonExecutive Vice President, Chief Financial Officer and Treasurer 6




---



##### 



Northbridge Financial Corporation
Consolidated Financial Statements
For the Years Ended December 31, 2004 and 2003 PageINDEX TO CONSOLIDATED FINANCIAL STATEMENTS
    
    NumberManagements Responsibility for Financial Reporting
    
    
    7Auditors Report to the Shareholders
    
    
    7Consolidated Balance Sheets
    
    
    8Consolidated Statements of Earnings
    
    
    9Consolidated
Statements of Retained Earnings
    
    
    9Consolidated Statements of Cash Flows
    
    
    10Notes to Consolidated Financial Statements
    
    
    11
 Managements Responsibility for Financial Reporting Management is responsible for the preparation, integrity and fair presentation of the
financial statements, managements discussion and analysis, and other information in this annual
report. The financial statements were prepared in accordance with Canadian generally accepted
accounting principles and, in the opinion of management, fairly reflect the financial position,
results of operations and changes in the financial position of Northbridge Financial Corporation. Acting through the Audit Committee, the Board of Directors oversees managements responsibility for
financing reporting and internal control systems. The Audit Committee is responsible for reviewing
the financial statements and managements discussion and analysis and recommending them to the
Board of Directors for approval. To discharge its duties the Committee meets with management and
external auditors to discuss audit plans, internal controls over accounting and financial reporting
processes, auditing matters and financial reporting issues. As the independent auditors appointed by the shareholders, PricewaterhouseCoopers LLP are
responsible for reporting to shareholders on the fairness of Northbridge Financial Corporations
presentation of the annual financial statements. The shareholders auditors have full and
unrestricted access to, and meet periodically with, the Audit Committee to discuss their audit and
related findings. Toronto, Canada, February 8, 2005 /s/ Byron G. Messier
    
    
    
    /s/ Greg TaylorByron G. Messier
    
    
    
    Greg TaylorPresident and Chief Executive Officer
    
    
    
    Chief Financial Officer
 Auditors Report to the Shareholders We have audited the consolidated balance sheets of Northbridge Financial Corporation as at
December 31, 2004 and 2003 and the consolidated statements of earnings, retained earnings and cash
flows for the years ended December 31, 2004 and 2003. These financial statements are the
responsibility of the companys management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects,
the financial position of the company as at December 31, 2004 and 2003 and the results of its
operations and its cash flows for each of the years then ended in accordance with Canadian
generally accepted accounting principles. /s/ PricewaterhouseCoopers
LLPPricewaterhouseCoopers LLPChartered AccountantsToronto, CanadaFebruary 8, 2005, except note 17 which date is May 27, 2005
 7




---



##### 



Consolidated Balance Sheets (in
Cdn $ thousands)As at December 31,
    
    2004
    
    
    2003AssetsCash and short term investments
    
    
    1,368
    
    
    
    5,392Accounts receivable and other
    
    
    573,477
    
    
    
    511,693Paid losses receivable
    
    
    72,152
    
    
    
    58,731Recoverable from reinsurers
    
    
    1,185,048
    
    
    
    1,118,3091,832,045
    
    
    
    1,694,125InvestmentsSubsidiary cash and short term investments
    
    
    565,345
    
    
    
    421,517Bonds
    
    
    1,049,020
    
    
    
    779,978Preferred stocks
    
    
    154,625
    
    
    
    175,764Common stocks
    
    
    504,464
    
    
    
    311,331Investment in Hub
    
    
    90,117
    
    
    
    87,953Real estate
    
    
    11,875
    
    
    
    12,243Total investments
    
    
    2,375,446
    
    
    
    1,788,786Deferred premium acquisition costs
    
    
    131,908
    
    
    
    133,262Future income taxes
    
    
    44,720
    
    
    
    32,598Premises and equipment
    
    
    13,458
    
    
    
    12,090Goodwill
    
    
    19,912
    
    
    
    22,267Other assets
    
    
    6,525
    
    
    
    6,1964,424,014
    
    
    
    3,689,324LiabilitiesAccounts payable and accrued liabilities
    
    
    292,891
    
    
    
    300,923Obligations related to securities sold short
    
    
    264,797
    
    
    
    Income taxes payable
    
    
    3,335
    
    
    
    50,776Due to affiliates
    
    
    99
    
    
    
    1,227Provision for claims
    
    
    2,089,778
    
    
    
    1,690,217Unearned premiums
    
    
    911,447
    
    
    
    905,695Mortgage payable
    
    
    
    
    
    
    6,1153,562,347
    
    
    
    2,954,953Shareholders EquityCapital
    
    
    575,827
    
    
    
    575,664Retained earnings
    
    
    297,456
    
    
    
    165,744Currency translation account
    
    
    (11,616
    )
    
    
    (7,037
    )861,667
    
    
    
    734,3714,424,014
    
    
    
    3,689,324
 See accompanying notes. On behalf of the Board: /s/ Byron G. Messier
    
    
    
    /s/ Robbert HartogByron
G. Messier
    
    
    
    Robbert HartogDirector
    
    
    
    Director
 8




---



##### 



Consolidated Statements of Earnings (in Cdn $ thousands, except per share amounts)For the Years Ended December 31 ,
    
    2004
    
    
    2003RevenueGross premiums written
    
    
    1,936,635
    
    
    
    1,861,758Net premiums written
    
    
    1,250,394
    
    
    
    1,132,785Net premiums earned
    
    
    1,226,034
    
    
    
    992,864Interest and dividends
    
    
    79,519
    
    
    
    74,580Realized gains on investments
    
    
    29,511
    
    
    
    94,9251,335,064
    
    
    
    1,162,369ExpensesClaims
    
    
    762,198
    
    
    
    650,577Operating expenses
    
    
    170,478
    
    
    
    157,197Commissions, net
    
    
    89,785
    
    
    
    66,824Premium taxes
    
    
    52,874
    
    
    
    44,464Other
    
    
    10,827
    
    
    
    6,2001,086,162
    
    
    
    925,262Earnings before income taxes
    
    
    248,902
    
    
    
    237,107Provision for income taxes
    
    
    86,678
    
    
    
    84,150Net earnings
    
    
    162,224
    
    
    
    152,957Net
earnings per share
    
    $
    3.19
    
    
    $
    3.07Net earnings per diluted share
    
    $
    3.18
    
    
    $
    3.07Weighted average shares (000)
    
    
    50,851
    
    
    
    49,824Weighted average diluted shares (000)
    
    
    50,956
    
    
    
    49,861Shares outstanding (000)
    
    
    50,851
    
    
    
    50,851
 Consolidated Statements of Retained Earnings (in Cdn $ thousands)For the Years Ended December 31,
    
    2004
    
    
    2003Retained earnings  beginning of year
    
    
    165,744
    
    
    
    37,356Net earnings
    
    
    162,224
    
    
    
    152,957Common share dividends
    
    
    (30,512
    )
    
    
    (24,569
    )Retained earnings  end of year
    
    
    297,456
    
    
    
    165,744
 See accompanying notes. 9




---



##### 



Consolidated Statements of Cash Flows (in $ Cdn thousands)For the Years Ended December 31,
    
    2004
    
    
    2003Operating activitiesNet earnings
    
    
    162,224
    
    
    
    152,957Amortization
    
    
    3,389
    
    
    
    7,471Future income taxes
    
    
    (12,122
    )
    
    
    (4,200
    )Realized gains on investments
    
    
    (29,511
    )
    
    
    (94,925
    )123,980
    
    
    
    61,303Cash flow from change in:Provision for claims
    
    
    394,761
    
    
    
    173,755Unearned premiums
    
    
    5,752
    
    
    
    76,798Accounts receivable and other
    
    
    (61,784
    )
    
    
    (85,161
    )Income taxes payable
    
    
    (47,441
    )
    
    
    30,806Deferred premium acquisition costs
    
    
    1,354
    
    
    
    (19,598
    )Paid losses receivable
    
    
    (13,421
    )
    
    
    28,594Recoverable from reinsurers
    
    
    (66,739
    )
    
    
    (1,720
    )Due to affiliates
    
    
    (1,128
    )
    
    
    (873
    )Accounts payable and accrued liabilities
    
    
    (8,032
    )
    
    
    (29,024
    )Other
    
    
    (166
    )
    
    
    (603
    )Cash provided by operating activities
    
    
    327,136
    
    
    
    234,277Investing activitiesInvestments  purchases
    
    
    (886,659
    )
    
    
    (1,045,653
    ) sales
    
    
    741,610
    
    
    
    992,877Purchase of premises and equipment
    
    
    (5,877
    )
    
    
    (4,738
    )Cash used in investing activities
    
    
    (150,926
    )
    
    
    (57,514
    )Financing activitiesIssue of common shares
    
    
    
    
    
    
    47,711Mortgage payable  repayment
    
    
    (6,115
    )
    
    
    (761
    )Common share dividends
    
    
    (30,512
    )
    
    
    (24,569
    )Cash provided by (used in) financing activities
    
    
    (36,627
    )
    
    
    22,381Foreign currency translation
    
    
    221
    
    
    
    98Increase in cash resources
    
    
    139,804
    
    
    
    199,242Cash resources  beginning of year
    
    
    426,909
    
    
    
    227,667Cash resources  end of year
    
    
    566,713
    
    
    
    426,909Interest paid
    
    
    87
    
    
    
    562Taxes paid
    
    
    149,676
    
    
    
    54,913
 See accompanying notes. Cash resources consist of cash and short term investments, including subsidiary cash and short
term investments. Short term investments are readily convertible into cash and have maturities of
three months or less. 10




---



##### 



Notes to Consolidated Financial Statements
For the Years Ended December 31,
2004 and 2003 (in Cdn$ thousands and as otherwise indicated) 1. Organization and Basis of Presentation These consolidated financial statements have been prepared in accordance with Canadian
generally accepted accounting principles and reflect the following transaction that occurred in
conjunction with the closing of the Initial Public Offering of the companys shares on May 28,
2003. Prior to the closing of the offering, the issued and outstanding shares of Fairfax Financial
Holdings Limiteds (Fairfax) wholly owned Canadian insurance subsidiaries, Lombard Canada Ltd.
(Lombard), Commonwealth Insurance Company (Commonwealth), Markel Insurance Company of Canada
(Markel) and Federated Holdings of Canada Ltd. (Federated) and a portion of Fairfaxs investment in
Hub International Limited (Hub) were contributed to Northbridge Financial Corporation (the
company), a company newly incorporated by Fairfax on April 10, 2003. This transaction has been
accounted for on a historical cost basis similar to a pooling of interests as it is a transaction
with a group of companies and an investment under common control. The historical results of the
underlying subsidiaries prior to their contribution to the company become the historical financial
statements of the company. Hub is accounted for on the equity basis in these financial statements. The company is principally engaged in property and casualty insurance. 2. Summary of Significant Accounting Policies The preparation of financial statements in accordance with Canadian generally accepted
accounting principles requires management to make estimates and assumptions that affect reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities as at the
date of the financial statements and the reported amounts of revenue and expenses during the
periods covered by the financial statements. The principal financial statement components subject
to measurement uncertainty include the provision for claims (note 4), other than temporary declines
in the value of investments (note 3), the allowance for unrecoverable reinsurance (note 6), the
carrying value of future tax assets (note 7) and the valuation of goodwill (note 2). Actual results
could differ from those estimates. Acquisitions are accounted for by the purchase method, whereby the results of acquired
companies are included only from the date of acquisition. Divestitures are included up to the
date of disposal. Premiums Insurance and reinsurance premiums are taken into income evenly throughout the terms of the related
policies. Commissions Commissions paid to brokers and received from reinsurers can be based on a fixed rate or variable
rate. The recording of fixed rate commissions in the statement of earnings follows the premiums to
which they relate. Variable rate commissions are recorded when they can be reasonably estimated. Deferred premium acquisition costs Certain costs, consisting of brokers commissions and premium taxes, of acquiring insurance
premiums are deferred, to the extent that they are considered recoverable, and charged to income
as the premiums are earned. The ultimate recoverability of deferred premium acquisition costs is
determined without regard to investment income. Investments Bonds are carried at amortized cost providing for the amortization of the discount or premium on a
yield to maturity basis. Preferred and common stocks are carried at cost. Real estate is carried at
cost. When there has been a loss in value of an investment that is other than 11




---



##### 



temporary, the investment is written down to its estimated net realizable value. Such writedowns
are reflected in realized gains (losses) on investments. Investment income is recorded as it accrues. Dividend income on common and preferred shares is
recorded on the ex-dividend date. Gains and losses on disposal of investments are determined and
recorded as at the trade date, and are calculated on the basis of average cost. Provision for claims Claim provisions are established by the case method as claims are reported. The estimates are
regularly reviewed and updated as additional information on the estimated claims becomes known and
any resulting adjustments are included in earnings. A provision is also made for managements
calculation of factors affecting the future development of claims including claims incurred but not
reported (IBNR) based on the volume of business currently in force and the historical experience on
claims. Claims liabilities are carried on an undiscounted basis. Translation of foreign currencies Assets and liabilities in foreign currencies are translated into Canadian dollars at year-end
exchange rates. Revenues and expenses are translated at the exchange rates in effect at the date
incurred. Realized gains and losses on foreign exchange transactions are recognized in the
statements of earnings. The operation of the companys U.S. subsidiary is self-sustaining. As a result, the assets and
liabilities of this subsidiary are translated at the year-end rates of exchange on consolidation.
Revenue and expenses are translated at the average rate of exchange for the year. The resulting
gains and losses are deferred as a separate component of shareholders equity. Goodwill Goodwill is recorded on the balance sheet at the amount initially recognized, less any
write-down for impairment. The company regularly assesses the carrying value of goodwill based on
the underlying discounted cash flows and operating results of its subsidiaries. The estimated fair
values are sensitive to the cash flow projections and discount rates used in the valuation. Reinsurance The company reflects third party reinsurance balances on the balance sheet on a gross basis to
indicate the extent of credit risk related to third party reinsurance and its obligations to
policyholders and on a net basis in the statement of earnings to indicate the results of its
retention of premiums written. Income taxes Income taxes reflect the expected future tax consequences of temporary differences between the
carrying amounts of assets and liabilities and their tax bases based on tax rates which are
expected to be in effect when the asset or liability is settled. Pension and other post-retirement benefits The company provides a number of pension and other future benefit plans for qualifying employees.
Pension benefits offered through registered plans and supplemental plans are based on years of
service and final average earnings. The company also has defined contribution pension plans and a
benefit plan offering health care, dental care and life insurance. The cost of these employee future benefits is actuarially determined using the projected benefit
method prorated on service. The calculation uses managements best estimate of a number of
assumptions including the long term investment return on plan assets, future compensation levels,
mortality and health care costs. Actuarial gains (losses) arise from the difference between actual
long term rate of return on plan assets for a period and the expected long term rate of return on
plan assets for that period or from changes in the actuarial assumptions used to determine the
accrued benefit obligation. The excess of the net actuarial gain (loss) over 10 percent of the
greater of the benefit obligation and the fair value of plan assets is amortized over the average
remaining service period of active employees. For the companys largest 12




---



##### 



pension plan the remaining service period of active employees is 12.9 years and for the future
benefit plan the period is 20 years. The plan assets are valued at fair value but the expected investment return on plan assets for
expense purposes is based on market-related value of assets. 3. Investment Information Investments comprise:Carrying
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedAs at December 31, 2004
    
    Value
    
    
    Gain
    
    
    Loss
    
    
    Fair ValueCash and short term investments
    
    
    565,345
    
    
    
    
    
    
    
    
    
    
    
    565,345BondsCanadian  government
    
    
    483,564
    
    
    
    21,841
    
    
    
    
    
    
    
    505,405 corporate
    
    
    275,556
    
    
    
    3,776
    
    
    
    (302
    )
    
    
    279,030Foreign  government
    
    
    87,664
    
    
    
    204
    
    
    
    (2,620
    )
    
    
    85,248 corporate
    
    
    202,236
    
    
    
    10,564
    
    
    
    (14,036
    )
    
    
    198,764Preferred stocksCanadian
    
    
    154,625
    
    
    
    765
    
    
    
    (40
    )
    
    
    155,350Common stocksCanadian
    
    
    370,534
    
    
    
    115,025
    
    
    
    (5,681
    )
    
    
    479,878Foreign
    
    
    133,930
    
    
    
    28,846
    
    
    
    (5,644
    )
    
    
    157,132Obligations related to securities sold short
    
    
    (264,797
    )
    
    
    
    
    
    
    
    
    
    
    (264,797
    )Investment in Hub
    
    
    90,117
    
    
    
    20,296
    
    
    
    
    
    
    
    110,413Real estate
    
    
    11,875
    
    
    
    6,525
    
    
    
    
    
    
    
    18,400Total
    
    
    2,110,649
    
    
    
    207,842
    
    
    
    (28,323
    )
    
    
    2,290,168
 Carrying
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedAs at December 31,2003
    
    Value
    
    
    Gain
    
    
    Loss
    
    
    Fair ValueCash and short term investments
    
    
    421,517
    
    
    
    
    
    
    
    
    
    
    
    421,517BondsCanadian  government
    
    
    522,736
    
    
    
    16,500
    
    
    
    (6,020
    )
    
    
    533,216 corporate
    
    
    181,093
    
    
    
    5,610
    
    
    
    (38
    )
    
    
    186,665Foreign  government
    
    
    8,401
    
    
    
    495
    
    
    
    (42
    )
    
    
    8,854 corporate
    
    
    67,748
    
    
    
    486
    
    
    
    (10,689
    )
    
    
    57,545Preferred stocksCanadian
    
    
    175,764
    
    
    
    2,075
    
    
    
    (5
    )
    
    
    177,834Common stocksCanadian
    
    
    187,768
    
    
    
    43,279
    
    
    
    (362
    )
    
    
    230,685Foreign
    
    
    123,563
    
    
    
    44,012
    
    
    
    
    
    
    
    167,575Investment in Hub
    
    
    87,953
    
    
    
    24,291
    
    
    
    
    
    
    
    112,244Real estate
    
    
    12,243
    
    
    
    6,157
    
    
    
    
    
    
    
    18,400Total
    
    
    1,788,786
    
    
    
    142,905
    
    
    
    (17,156
    )
    
    
    1,914,535
 The estimated fair values of debt securities and preferred and common stocks are primarily
based on quoted market values. The estimated fair values of real estate investments are based on
appraised values. Management has reviewed currently available information regarding those investments whose estimated
fair value is less than carrying value at December 31, 2004. Debt securities whose carrying value
exceeds market value can be held until maturity. All investments have been reviewed to ensure that
corporate performance expectations have not changed significantly to adversely affect the market
value of these 13




---



##### 



securities other than on a temporary basis. The company has investments in
certain high yield debt securities for which the fair value of the investment is below the cost to the company. The company has written down the carrying value of these investments to reflect an other than temporary decline in value. The carrying value has been written down to the companys assessment of the underlying value of the investments. The company may not view the current quoted market value of these securities as being
reflective of the underlying value of the investment. At December 31, 2004, the company had total bonds rated less than investment grade with an aggregate carrying value of $33,096, aggregate quoted market value of $28,922, gross unrealized gains of $nil and gross unrealized losses of $4,174. In July and August, 2004, as an economic hedge against a decline in the equity markets, the company executed a short sale of approximately US$200,000 of Standard & Poors Depositary Receipts (SPDRs). Simultaneously, the company entered into two-year call option contracts (Options) to limit the potential loss on the future purchase of the SPDRs to approximately US$40,000. The cost of the Options was US$6,070. The Options and the obligation to purchase the SPDRs are carried at fair value in the consolidated financial statements. The fair value of the obligation to purchase the SPDRs is included in obligations related to securities sold short and the fair value of the Options is included in common stocks in the consolidated balance sheet. As at December 31, 2004, the net change in the fair values of the SPDRs and the Options totalled a loss of $20,483 and was included in realized gains on investments on the consolidated statement of earnings. The companies have pledged (either directly or indirectly to support letters of credit) portfolio investments of $74,213 as security for reinsurance balances and regulatory deposits. The companies have pledged cash and investments of $339,872 as security for securities sold short. Liquidity and Interest Rate Risk Maturity profile: Within 1 Year
    
    
    1 to 5 Years
    
    
    6 to 10 Years
    
    
    Over 10 Years
    
    
    TotalAs at December 31, 2004Bonds (carrying value)
    
    
    134,516
    
    
    
    207,949
    
    
    
    359,563
    
    
    
    346,992
    
    
    
    1,049,020Effective interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.12
    %As at December 31, 2003Bonds (carrying value)
    
    
    
    
    
    
    399,853
    
    
    
    240,281
    
    
    
    139,844
    
    
    
    779,978Effective interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.38
    %
 Certain bonds have call and put options, which modify the underlying maturity dates of
these bonds. These options generally advance the maturity dates. The call option is exercised
at the issuers option, whereas the put option is exercised at the companys option. Bonds are
classified in the above table at the earliest of the available maturity dates. Should the call
or put options not be exercised the actual maturities may differ from the maturities shown. 14




---



##### 



Investment Income 2004
    
    
    2003Interest and dividends:Cash and short term investments
    
    
    9,241
    
    
    
    9,786Bonds
    
    
    42,414
    
    
    
    39,974Preferred stocks
    
    
    4,790
    
    
    
    8,770Common stocks
    
    
    28,024
    
    
    
    20,333Other
    
    
    3,933
    
    
    
    65288,402
    
    
    
    79,515Expenses
    
    
    8,883
    
    
    
    4,93579,519
    
    
    
    74,580Realized gains (losses) on investments:Bonds
    
    
    7,604
    
    
    
    79,294Preferred stocks
    
    
    (131
    )
    
    
    (2,195
    )Common stocks
    
    
    23,827
    
    
    
    21,654Provision for losses and writedowns
    
    
    (1,789
    )
    
    
    (3,828
    )29,511
    
    
    
    94,925Net investment income
    
    
    109,030
    
    
    
    169,505
 Interest and dividends:
Common stocks include equity earnings of Hub of $5,154 (2003 
$5,401). 4. Provision for Claims The provisions for unpaid claims and adjustment expenses and for the reinsurers share
thereof are estimates subject to variability, and the variability could be material in the near
term. The variability arises because all events affecting the ultimate settlement of claims have
not taken place and may not take place for some time. Variability can be caused by receipt of
additional claim information, changes in judicial interpretation of contracts or liability or
significant changes in severity or frequency of claims from historical trends. The estimates are
principally based on the companys historical experience. Methods of estimation have been used
which the company believes produce reasonable results given current information. Changes in claim liabilities recorded on the balance sheet for the years ended December 31, 2004
and 2003 and their impact on unpaid claims and adjustment expenses for these two years are as shown
in the following table: 2004
    
    
    2003Unpaid claim liabilities  beginning of year  net
    
    
    855,375
    
    
    
    728,909Foreign exchange effect of change in claims liabilities
    
    
    (13,337
    )
    
    
    (27,229
    )Increase in estimated losses and expenses for losses occurring in prior years
    
    
    14,978
    
    
    
    19,179Provision for losses and expenses on claims occurring in the current year
    
    
    736,334
    
    
    
    619,586Paid on claims occurring during:the current year
    
    
    (206,117
    )
    
    
    (211,366
    )prior years
    
    
    (233,388
    )
    
    
    (273,704
    )Unpaid claim liabilities  end of year  net
    
    
    1,153,845
    
    
    
    855,375Actuarial liabilities at December 31 of Federated Life
    
    
    31,421
    
    
    
    31,189Unpaid claim liabilities  end of year  net
    
    
    1,185,266
    
    
    
    886,564Reinsurance gross-up
    
    
    904,512
    
    
    
    803,653Unpaid claim liabilities  end of year  gross
    
    
    2,089,778
    
    
    
    1,690,217
 The basic assumptions made in establishing claim liabilities are best estimates of possible
outcomes. 15




---



##### 



The company has obligations to pay certain fixed amounts to claimants on a recurring basis
and has purchased annuities from life insurers to provide for those payments. Therefore, the net
risk to the company is any credit risk related to the life companies. Management does not believe
provisions for credit risk are required at December 31, 2004. The estimated fair value of the
future payments is $93,121 (2003 - $99,874). 5. Capital The company was incorporated on April 10, 2003 as a wholly owned subsidiary of Fairfax. Prior
to the closing of the companys initial public offering on May 28, 2003, the issued and outstanding
shares of Fairfaxs wholly owned Canadian insurance subsidiaries, Lombard, Commonwealth, Markel and
Federated and a portion of Fairfaxs investment in Hub were contributed to the company as part of a
reorganization that included issuance to Fairfax and commonly controlled entities of 37,451,306
common shares of the company and a promissory note for $170,000. The issuance of 13,400,000 common
shares pursuant to the initial public offering increased the number of the companys outstanding
common shares to 50,851,306. Gross proceeds of the initial public offering were $201,000. Net
proceeds to the company, after repayment of the $170,000 reorganization promissory note to Fairfax
and payment of underwriters fees and expenses of the offering totaling $13,289 were $17,711. Upon
the exercise of the underwriters over-allotment option on June 10, 2003, Fairfax and its
affiliates sold 1,340,000 common shares, decreasing Fairfaxs ownership to 36,111,306 common shares
and leaving the companys common shares outstanding unchanged at 50,851,306. On May 18, 2004,
Fairfax and its affiliates completed a secondary offering of 6,000,000 common shares of
Northbridge, reducing Fairfaxs ownership to 30,111,306. The authorized capital consists of an unlimited number of common shares and an unlimited number of
preferred shares, to be issued in a series, the rights and preferences of which may be established
from time to time. The capital table that follows reflects the combined issued and outstanding common and preferred
shares and surplus of the entities included in these consolidated financial statements up to the
time of the reorganization and initial public offering. Subsequent to the reorganization and
initial public offering the table reflects the issued shares of the company. ContributedPreferred shares
    
    
    Common Shares
    
    
    Surplus
    
    
    TotalNumber
    
    
    $
    
    
    Number
    
    
    $
    
    
    $
    
    
    $Balance, December 31, 2002
    
    
    762,460
    
    
    
    81,196
    
    
    
    308,757
    
    
    
    312,949
    
    
    
    128,867
    
    
    
    523,012Issued
    
    
    
    
    
    
    
    
    
    
    3,000
    
    
    
    30,000
    
    
    
    
    
    
    
    30,000Balance, May 28, 2003 prior to
reorganization and initial public
offering
    
    
    762,460
    
    
    
    81,196
    
    
    
    311,757
    
    
    
    342,949
    
    
    
    128,867
    
    
    
    553,012Balance, May 28, 2003 after
reorganization and initial public
offering
    
    
    
    
    
    
    
    
    
    
    50,851,306
    
    
    
    575,569
    
    
    
    
    
    
    
    575,569Amortization of options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95
    
    
    
    95Balance, December 31, 2003
    
    
    
    
    
    
    
    
    
    
    50,851,306
    
    
    
    575,569
    
    
    
    95
    
    
    
    575,664Amortization of options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    163
    
    
    
    163Balance, December 31, 2004
    
    
    
    
    
    
    
    
    
    
    50,851,306
    
    
    
    575,569
    
    
    
    258
    
    
    
    575,827
 During 2003 and prior to the initial public offering Lombard issued 3,000 common shares to
Fairfax for cash consideration of $30,000. Earnings per share is calculated by dividing net income
by the weighted average number of shares outstanding during the year. 6. Reinsurance The company follows the policy of underwriting and reinsuring contracts of insurance which,
depending on the type of contract, generally limits the liability of the individual insurance
companies to a maximum amount on any one loss of $4,000. Reinsurance is generally placed on a quota
share basis or on an excess of loss basis in several layers. Reinsurance does not, however, relieve
the companies of their primary obligation to the policyholders. 16




---



##### 



The company has guidelines and a review process in place to assess the creditworthiness of
the companies to which it cedes. The company makes specific provisions against reinsurance
recoverable from companies considered to be in financial difficulty. In addition, a general
allowance is recorded based upon analysis of historical recoveries, the level of allowance already
in place and managements judgment. As at December 31, 2004, the allowance for loss was $8,925
(2003 - $8,100). During the year, the company ceded premiums earned and claims incurred as follows: Premiums earned
    
    
    Claims incurred2004
    
    
    2003
    
    
    2004
    
    
    2003Reinsurance ceded to:Related parties
    
    
    319,779
    
    
    
    397,560
    
    
    
    210,556
    
    
    
    229,032Other
    
    
    373,872
    
    
    
    351,957
    
    
    
    252,117
    
    
    
    179,395Total
    
    
    693,651
    
    
    
    749,517
    
    
    
    462,673
    
    
    
    408,427
 The company ceded reinsurance to unregistered companies which have deposited cash or
investments in trust accounts with a market value of $583,828 (2003 - $483,148) in respect of such
reinsurance. The amounts deposited in trust have not been reflected in the balance sheet of the
company. 7. Income Taxes The companys provision for (recovery of) income taxes is as follows: 2004
    
    
    2003Current
    
    
    98,800
    
    
    
    88,350Future
    
    
    (12,122
    )
    
    
    (4,200
    )86,678
    
    
    
    84,150
 The provision for income taxes differs from the statutory tax rate as certain sources of
income are exempt from tax or are taxed at other than the statutory rate. A reconciliation of
income tax calculated at the statutory tax rate with the income tax provision at the effective tax
rate in the financial statements is summarized in the following table: 2004
    
    
    2003Provision for income taxes at statutory income tax rate
    
    
    89,564
    
    
    
    91,043Non-taxable investment income
    
    
    (4,695
    )
    
    
    (9,266
    )Change in tax rate for future income taxes
    
    
    (225
    )
    
    
    2,282Other
    
    
    2,034
    
    
    
    91Provision for income taxes
    
    
    86,678
    
    
    
    84,150
 Future income taxes comprise the following: 2004
    
    
    2003Operating and capital losses
    
    
    4,999
    
    
    
    7,111Claims discount
    
    
    28,992
    
    
    
    17,191Unearned premium reserve
    
    
    (92
    )
    
    
    (600
    )Investments
    
    
    546
    
    
    
    (10
    )Pension and post retirement benefits
    
    
    6,791
    
    
    
    2,300Initial public offering costs
    
    
    3,094
    
    
    
    4,227Other
    
    
    390
    
    
    
    2,379Future income taxes
    
    
    44,720
    
    
    
    32,598
 Management expects that future income taxes will be realized in the normal course of
operations. 17




---



##### 



8. Statutory Requirements The insurance subsidiaries are subject to certain requirements and restrictions under
insurance company legislation including minimum capital requirements and dividend restrictions. At December 31, 2004, the insurance subsidiaries have a surplus of $308,393 in excess of the
minimum supervisory requirement of 150%. 9. Contingencies and Commitments In the normal course of business, the insurance subsidiaries are defendants in several damage
suits and have been named as a third party in other suits. The uninsured exposure to the company is
not considered to be material to the companys financial position. Unsecured letters of credit aggregating $9,202 (2003 - $35,000), have been issued upon application
by the insurance subsidiaries and have been pledged as security for subsidiaries reinsurance
balances, principally relating to reinsurance with companies under common control. These are
unsecured letters of credit in addition to the secured letters of credit referred to in note 3. The company has guaranteed bank loans, obtained by certain brokers, in the amount of $6,014, (2003
- $6,500). 10. Operating Leases Future minimum commitments aggregating $89,950 at December 31, 2004 under operating leases
relating to premises, automobiles and equipment for various terms up to ten years are as follows: 2005
    
    
    14,8712006
    
    
    13,3042007
    
    
    11,9122008
    
    
    10,9082009
    
    
    10,682Thereafter
    
    
    28,273
 11. Related Party Transactions and Balances During the year, the following related party transactions occurred with companies under
common control in the normal course of business on normal market terms:  a)
    
    Obtained investment counseling and administration services from Fairfax and Hamblin Watsa
Investment Counsel Ltd. (Hamblin Watsa). The cost of these services amounted to $7,277(2003 -
$3,505) and is included in investment income.b)
    
    Incurred expenses of $297 (2003 - $1,750) for services provided by Fairfax. The expenses are
included in other expenses.c)
    
    Paid adjuster fees in the normal course of business and on normal market terms of $3,981
(2003 - $2,318) to Lindsey Morden Group, for adjusting claims. The fees are included in claims
expense.d)
    
    Provided reinsurance coverage, assuming premiums of $12,698 (2003 - $10,517). The premiums
are included in gross written premiums.e)
    
    Paid software development and intranet fees to MFXchange Holdings of $822 (2003 - $4,455).f)
    
    Paid broker commissions to Hub, an entity subject to significant influence, of $26,825 (2003
- $28,199).g)
    
    Received reinsurance commissions of $67,123 (2003 $52,658) from CRC (Bermuda) Limited.h)
    
    Paid $1,923 (2003 - $1,680) to The Sixty Three Foundation, a registered charitable foundation
established by Fairfax, through which the Fairfax group of companies make charitable donations in
Canada. At December 31, 2004, $26,419 (2003 - $842) was receivable from related parties and is included in
accounts receivable and other. At December 31, 2004, $18,302 (2003 - $11,944) was receivable from related parties and is included
in paid losses receivable. 18




---



##### 



In 2004, the company entered into an agreement with Fairfax pursuant to which Fairfax transferred
part of its liability for Part VI.1 tax under the Income Tax Act (Canada) for each of the 2003 and
2004 taxation years to the company for consideration equal to any costs incurred and benefits
foregone by the company. As a result of assuming Part VI.1 tax of $5,200 (2003) and $5,162 (2004),
the company became entitled to an additional tax deduction equal to three times the amount of Part
VI. 1 tax paid for each of its 2003 and 2004 taxation years. This tax deduction reduced federal
Part I tax and Alberta, Ontario and Quebec provincial income tax otherwise payable by the company. 12. Segmented Information The company is primarily engaged in property and casualty insurance and the reportable
segments are considered to be the underwriting results of the companys individual subsidiaries
which are separately managed. a)   Lines of business segments For the Year Ended December 31, 2004
    
    Lombard
    
    
    Commonwealth
    
    
    Markel
    
    
    Federated
    
    
    TotalGross premiums written
    
    
    1,021,767
    
    
    
    466,692
    
    
    
    287,381
    
    
    
    160,795
    
    
    
    1,936,635Net premiums written
    
    
    715,254
    
    
    
    201,412
    
    
    
    233,010
    
    
    
    100,718
    
    
    
    1,250,394Net premiums earned
    
    
    705,524
    
    
    
    198,776
    
    
    
    225,170
    
    
    
    96,564
    
    
    
    1,226,034Claims
    
    
    423,435
    
    
    
    131,225
    
    
    
    145,524
    
    
    
    62,014
    
    
    
    762,198Operating expenses
    
    
    79,992
    
    
    
    31,650
    
    
    
    33,365
    
    
    
    25,471
    
    
    
    170,478Commissions, net
    
    
    91,712
    
    
    
    (14,918
    )
    
    
    15,051
    
    
    
    (2,060
    )
    
    
    89,785Premium taxes
    
    
    32,972
    
    
    
    6,135
    
    
    
    9,063
    
    
    
    4,704
    
    
    
    52,874628,111
    
    
    
    154,092
    
    
    
    203,003
    
    
    
    90,129
    
    
    
    1,075,335Underwriting results
    
    
    77,413
    
    
    
    44,684
    
    
    
    22,167
    
    
    
    6,435
    
    
    
    150,699Interest and dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79,519Net realized gains on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,511Other costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,827
    )Earnings before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    248,902Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86,678Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162,224Total identifiable assets
    
    
    2,136,570
    
    
    
    1,245,511
    
    
    
    633,640
    
    
    
    397,600
    
    
    
    4,413,321Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,693Total assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,424,014
 19




---



##### 



For the Year Ended December 31, 2003
    
    Lombard
    
    
    Commonwealth
    
    
    Markel
    
    
    Federated
    
    
    TotalGross premiums written
    
    
    966,173
    
    
    
    488,555
    
    
    
    261,163
    
    
    
    145,867
    
    
    
    1,861,758Net premiums written
    
    
    702,473
    
    
    
    183,932
    
    
    
    152,853
    
    
    
    93,527
    
    
    
    1,132,785Net premiums earned
    
    
    621,261
    
    
    
    164,476
    
    
    
    126,390
    
    
    
    80,737
    
    
    
    992,864Claims
    
    
    393,449
    
    
    
    111,887
    
    
    
    92,386
    
    
    
    52,855
    
    
    
    650,577Operating expenses
    
    
    82,021
    
    
    
    32,766
    
    
    
    21,191
    
    
    
    21,219
    
    
    
    157,197Commissions, net
    
    
    82,192
    
    
    
    (12,899
    )
    
    
    (1,525
    )
    
    
    (944
    )
    
    
    66,824Premium taxes
    
    
    28,934
    
    
    
    4,714
    
    
    
    6,916
    
    
    
    3,900
    
    
    
    44,464586,596
    
    
    
    136,468
    
    
    
    118,968
    
    
    
    77,030
    
    
    
    919,062Underwriting results
    
    
    34,665
    
    
    
    28,008
    
    
    
    7,422
    
    
    
    3,707
    
    
    
    73,802Interest and dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,580Net realized gains on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94,925Other costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,200
    )Earnings before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    237,107Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84,150Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    152,957Total identifiable assets
    
    
    1,739,350
    
    
    
    1,075,505
    
    
    
    531,125
    
    
    
    332,329
    
    
    
    3,678,309Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,015Total assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,689,324
  b)
    
    Geographic segments 2004
    
    
    
    
    
    
    
    
    
    
    2003For the Years Ended December 31,
    
    Canada
    
    
    US & Other
    
    
    Total
    
    
    Canada
    
    
    US & Other
    
    
    TotalGross premiums written
    
    
    1,623,788
    
    
    
    312,847
    
    
    
    1,936,635
    
    
    
    1,523,419
    
    
    
    338,339
    
    
    
    1,861,758Net premiums written
    
    
    1,119,055
    
    
    
    131,339
    
    
    
    1,250,394
    
    
    
    1,014,461
    
    
    
    118,324
    
    
    
    1,132,785Net premiums earned
    
    
    1,091,228
    
    
    
    134,806
    
    
    
    1,226,034
    
    
    
    882,522
    
    
    
    110,342
    
    
    
    992,864Claims
    
    
    656,894
    
    
    
    105,304
    
    
    
    762,198
    
    
    
    571,520
    
    
    
    79,057
    
    
    
    650,577Operating expenses
    
    
    149,847
    
    
    
    20,631
    
    
    
    170,478
    
    
    
    135,222
    
    
    
    21,975
    
    
    
    157,197Commissions, net
    
    
    94,166
    
    
    
    (4,381
    )
    
    
    89,785
    
    
    
    75,040
    
    
    
    (8,216
    )
    
    
    66,824Premium taxes
    
    
    52,179
    
    
    
    695
    
    
    
    52,874
    
    
    
    43,884
    
    
    
    580
    
    
    
    44,464953,086
    
    
    
    122,249
    
    
    
    1,075,335
    
    
    
    825,666
    
    
    
    93,396
    
    
    
    919,062Underwriting results
    
    
    138,142
    
    
    
    12,557
    
    
    
    150,699
    
    
    
    56,856
    
    
    
    16,946
    
    
    
    73,802Investment income
    
    
    104,139
    
    
    
    4,891
    
    
    
    109,030
    
    
    
    142,626
    
    
    
    26,879
    
    
    
    169,505Other
    
    
    (10,827
    )
    
    
    
    
    
    
    (10,827
    )
    
    
    (6,200
    )
    
    
    
    
    
    
    (6,200
    )Earnings before income taxes
    
    
    231,454
    
    
    
    17,448
    
    
    
    248,902
    
    
    
    193,282
    
    
    
    43,825
    
    
    
    237,107Total assets
    
    
    3,844,592
    
    
    
    579,422
    
    
    
    4,424,014
    
    
    
    3,065,126
    
    
    
    624,198
    
    
    
    3,689,324
 Geographic premiums are determined based on the domicile of the various subsidiaries. 20




---



##### 



c) Gross premiums written, by product line segments 2004
    
    
    2003Commercial:Property
    
    
    645,082
    
    
    
    678,708Automobile
    
    
    581,029
    
    
    
    515,739General Liability
    
    
    378,240
    
    
    
    306,105Life and Health
    
    
    23,557
    
    
    
    21,739Other
    
    
    73,739
    
    
    
    70,679Personal:Property
    
    
    72,501
    
    
    
    75,187Automobile
    
    
    162,487
    
    
    
    193,601Total
    
    
    1,936,635
    
    
    
    1,861,758
 13. Fair Value Information on the fair values of financial instruments of the company, including where those
values differ from their carrying values in the financial statements at December 31, 2004, include: Estimated FairNote Reference
    
    
    Carrying Value
    
    
    ValueInvestments
    
    
    3
    
    
    
    2,110,649
    
    
    
    2,290,168Provision for claims
    
    
    4
    
    
    
    2,089,778
    
    
    
    2,054,372Unpaid claims recoverable from reinsurers
    
    
    4
    
    
    
    904,512
    
    
    
    887,134
 Discounted amounts calculated in accordance with generally accepted actuarial methods in
Canada have been used as an approximation of the fair value of provision for claims and unpaid
claims recoverable from reinsurers. The amounts above do not include the fair value of underlying lines of business. While fair value
amounts are designed to represent estimates of the amounts at which instruments could be exchanged
in current transactions between willing parties, certain of the companys financial instruments
lack an available trading market. Therefore, these instruments have been valued on a going concern
basis. These fair values have not been reflected in the financial statements. 14. Pension Plan The companies have a number of funded and unfunded defined benefit plans, as well as defined
contribution plans, that provide pension, other retirement and post-retirement benefits to most
employees. The defined benefit pension plans are non-contributory and are based on years of service
and final average earnings. Other retirement benefit plans are non-contributory extended health care, dental care insurance for
which the companies pay 50% of the premium cost and optional life insurance on a contributory
basis. Total Cash Payments Total cash payments for employee future benefits for 2004, consisting of cash payments for the
defined contribution plans, cash payments to beneficiaries for the unfunded pension plans, and cash
payments to service providers for health and dental benefits, was $1,900 (2003
- $2,157). 21




---



##### 



Defined Benefit Plans The companies measure their accrued benefit obligations and the fair value of plan assets
for accounting purposes as at December 31 of each year. The most recent actuarial valuation of
the pension plans for funding purposes was as of January 1, 2003 and the next required valuation
will be as of January 1, 2005. Defined Benefit Plan Obligations Pension Benefit Plans
    
    
    Other Benefit Plans2004
    
    
    2003
    
    
    2004
    
    
    2003Accrued benefit obligationBalance at beginning of year
    
    
    122,488
    
    
    
    108,128
    
    
    
    12,594
    
    
    
    10,171Current service cost
    
    
    3,625
    
    
    
    3,513
    
    
    
    727
    
    
    
    424Interest cost
    
    
    7,751
    
    
    
    6,860
    
    
    
    936
    
    
    
    663Benefits paid
    
    
    (5,764
    )
    
    
    (6,005
    )
    
    
    (302
    )
    
    
    (363
    )Actuarial losses
    
    
    8,819
    
    
    
    7,553
    
    
    
    3,578
    
    
    
    1,699Plan amendments
    
    
    2,536
    
    
    
    2,439
    
    
    
    
    
    
    
    Balance at end of year
    
    
    139,455
    
    
    
    122,488
    
    
    
    17,533
    
    
    
    12,594
 Defined Benefit Plan Assets Pension Benefit Plans
    
    
    Other Benefit Plans2004
    
    
    2003
    
    
    2004
    
    
    2003Fair value of plan assetsBalance at beginning of year
    
    
    124,113
    
    
    
    117,372
    
    
    
    
    
    
    
    Actual return on plan assets
    
    
    11,214
    
    
    
    12,492
    
    
    
    
    
    
    
    Employer contributions
    
    
    30
    
    
    
    254
    
    
    
    302
    
    
    
    363Employee contributions
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    Benefits paid
    
    
    (5,764
    )
    
    
    (6,005
    )
    
    
    (302
    )
    
    
    (363
    )Balance at end of year
    
    
    129,616
    
    
    
    124,113
    
    
    
    
    
    
    
    
 Plan assets consist of: Percentage of Plan Assets2004
    
    
    2003Equity securities
    
    
    18
    %
    
    
    13
    %Debt securities
    
    
    80
    %
    
    
    84
    %Other
    
    
    2
    %
    
    
    3
    %Total
    
    
    100
    %
    
    
    100
    %
 Reconciliation of the funded status surplus (deficit) of the benefit plans to the amounts
recorded in the financial statements Pension Benefit Plans
    
    
    Other Benefit Plans2004
    
    
    2003
    
    
    2004
    
    
    2003Fair value of plan assets
    
    
    129,616
    
    
    
    124,113
    
    
    
    
    
    
    
    Accrued benefit obligation
    
    
    139,455
    
    
    
    122,488
    
    
    
    17,533
    
    
    
    12,594Funded
status of plans  surplus (deficit)
    
    
    (9,839
    )
    
    
    1,625
    
    
    
    (17,533
    )
    
    
    (12,594
    )Unamortized net actuarial loss
    
    
    4,193
    
    
    
    2,884
    
    
    
    6,368
    
    
    
    3,004Unamortized past service costs
    
    
    2,429
    
    
    
    2,439
    
    
    
    
    
    
    
    Unamortized transitional obligation
    
    
    (9,330
    )
    
    
    (8,867
    )
    
    
    5,300
    
    
    
    5,654Accrued benefit asset (liability)
    
    
    (12,547
    )
    
    
    (1,919
    )
    
    
    (5,865
    )
    
    
    (3,936
    )
 22




---



##### 



The accrued benefit asset (liability), is included in the companys balance sheet as follows: Pension Benefit Plans
    
    
    Other Benefit Plans2004
    
    
    2003
    
    
    2004
    
    
    2003Other assets
    
    
    
    
    
    
    89
    
    
    
    
    
    
    
    Accounts payable
and accrued
liabilities
    
    
    (12,547
    )
    
    
    (2,008
    )
    
    
    (5,865
    )
    
    
    (3,936
    )Total
    
    
    (12,547
    )
    
    
    (1,919
    )
    
    
    (5,865
    )
    
    
    (3,936
    )
 Plans with accrued benefit obligations in excess of plan assets Included in the accrued benefit obligation and fair value of plan assets at year end are the
following amounts in respect of plans that are not fully funded: Pension Benefit Plans
    
    
    Other Benefit Plans2004
    
    
    2003
    
    
    2004
    
    
    2003Accrued benefit obligation
    
    
    23,955
    
    
    
    15,102
    
    
    
    17,533
    
    
    
    12,594Fair value of plan assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Funded and Unfunded plans
status-total plan deficit
    
    
    (23,955
    )
    
    
    (15,102
    )
    
    
    (17,533
    )
    
    
    (12,594
    )
 Elements of defined benefit costs recognized in the year Pension Benefit Plans
    
    
    Other Benefit Plans2004
    
    
    2003
    
    
    2004
    
    
    2003Current service cost, net of employee contributions
    
    
    3,625
    
    
    
    3,513
    
    
    
    727
    
    
    
    424Interest cost
    
    
    7,751
    
    
    
    6,860
    
    
    
    936
    
    
    
    663Actual return on plan assets
    
    
    (11,214
    )
    
    
    (12,492
    )
    
    
    
    
    
    
    Actuarial losses
    
    
    8,819
    
    
    
    7,533
    
    
    
    3,578
    
    
    
    1,699Plan amendments
    
    
    (117
    )
    
    
    223
    
    
    
    
    
    
    
    Elements of employee future benefits cost before adjustments to recognize the long
term nature of employee future benefits costs
    
    
    8,864
    
    
    
    5,657
    
    
    
    5,241
    
    
    
    2,786Adjustments
to recognize the long term nature of employee future benefits
costs:Difference between expected return and actual return on plan assets for year
    
    
    3,321
    
    
    
    4,986
    
    
    
    
    
    
    
    Difference between actuarial (gain) loss recognized for the year and actual
actuarial (gain) loss on accrued benefit obligation for year
    
    
    (4,630
    )
    
    
    (7,528
    )
    
    
    (3,364
    )
    
    
    (1,684
    )Difference between amortization of past service
costs for year and actual plan amendments for year
    
    
    2,640
    
    
    
    (207
    )
    
    
    
    
    
    
    Amortization of the transitional obligation
    
    
    463
    
    
    
    (996
    )
    
    
    354
    
    
    
    354Defined benefit costs recognized
    

    
    10,658
    
    
    
    1,912
    
    
    
    2,231
    
    
    
    1,456
 23




---



##### 



Significant assumptions The significant assumptions used are as follows (weighted average): Pension Benefit Plans
    
    

Other Benefit Plans2004
    
    
    2003
    
    
    2004
    
    
    2003Accrued
benefit obligation as of December 31:Discount rate
    
    
    5.6
    %
    
    
    5.9
    %
    
    
    5.8
    %
    
    
    6.0
    %Rate of compensation increase
    
    
    3.9
    %
    
    
    4.1
    %
    
    
    4.0
    %
    
    
    4.0
    %Benefit
costs for years ended December 31:Discount rate
    
    
    5.9
    %
    
    
    6.4
    %
    
    
    6.0
    %
    
    
    6.5
    %Expected long term rate of return on plan assets
    
    
    7.4
    %
    
    
    7.4
    %
    
    
    
    
    
    
    Rate of compensation increase
    
    
    4.1
    %
    
    
    4.1
    %
    
    
    4.0
    %
    
    
    4.0
    %Assumed
health care cost trend rates at December 31:Initial health care cost trend rate
    
    
    
    
    
    
    
    
    
    
    10.0
    %
    
    
    8.0
    %Cost trend rate declines to
    
    
    
    
    
    
    
    
    
    
    5.0
    %
    
    
    4.5
    %Year that the rate reaches the rate it is assumed to remain at
    
    
    
    
    
    
    
    
    
    
    2014
    
    
    
    2005
 Sensitivity analysis Assumed health care cost trend rates have a significant effect on the amounts reported
for the health care plans. A one-percentage-point change in assumed health care cost trend
rates would have the following effects for 2004: Increase
    
    
    DecreaseTotal of service and interest costs
    
    
    327
    
    
    
    (254
    )Accrued benefit obligation
    
    
    3,039
    
    
    
    (2,045
    )
 Defined contribution and other plans The total cost recognized for the companies defined contribution plans is as follows: 2004
    
    
    2003Plans providing pension benefits
    
    
    1,568
    
    
    
    1,544Plans providing other benefits
    
    
    
    
    
    
    Total
    
    
    1,568
    
    
    
    1,544
 15. Equity Compensation Plan The company has adopted an equity compensation plan under which stock-related awards may be
made to senior officers and directors of the company and its subsidiaries. The companys
accounting policy is to recognize the fair value of stock-based compensation as an expense over
the period in which entitlement to the compensation vests. Awards granted under the plan are
options to purchase shares from treasury or outstanding shares. Any option granted on outstanding
common shares will be made by an affiliate of the company. The exercise price of an option
granted shall not be less than the market price on the date of the grant. On May 28, 2003 the company granted options exercisable for 266 common shares at an exercise
price of $15.00 per share. The maximum option term is ten years and the options vest 50% over
five years and 50% over ten years. No options were exercised or forfeited and none expired from
the date of grant through to December 31, 2004. The aggregate fair value of options granted of
$1,141 was estimated on the date of grant using the Black-Scholes option pricing model with the
following assumptions: (i) dividend rate of $0.60 per share, (ii) expected volatility of 28.92%,
(iii) risk-free rate of 3.89% for five years and 4.56% for ten years and (iv) life expectancy of
five and ten years. For the year ended December 31, 2004 non-cash stock option compensation of
$163 (2003 - $95) was expensed with an offsetting credit to contributed surplus. 24




---



##### 



On December 8, 2004 the company granted options exercisable for 52 common shares at an
exercise price of $28.50 per share. The maximum option term is ten years and the options vest 50%
over five years and 50% over ten years. No options were exercised or forfeited and none expired
from the date of grant through to December 31, 2004. The aggregate fair value of options granted of
$364 was estimated on the date of grant using the Black-Scholes option pricing model with the
following assumptions: (i) dividend rate of $0.60 per share, (ii) expected volatility of 22.40%,
(iii) risk-free rate of 3.62% for five years and 4.26% for ten years and (iv) life expectancy of
five and ten years. For the year ended December 31, 2004 non-cash stock option compensation of $3
was expensed with an offsetting credit to accounts payable and accrued liabilities. 16. Agreement to Sell Federated Life In May of 2004 the company, through its directly wholly-owned subsidiary Federated Holdings
of Canada Ltd., entered into an agreement to sell its subsidiary Federated Life Insurance Company
of Canada. Subject to the receipt of regulatory approvals under the Insurance Companies Act
(Canada) and the Competition Act (Canada), the transaction is expected to close in the companys
first quarter of fiscal 2005. The $20,000 sale price will generate a pre-tax gain on sale of
approximately $4,000. 17. U.S. GAAP Reconciliation The consolidated financial statements of the company have been prepared in accordance with
Canadian GAAP, which are different in some respects from those applicable in the United States, as
described below. Consolidated Statement of Earnings For the years ended December 31, 2004 and 2003, the significant difference between
consolidated net earnings under Canadian GAAP and consolidated net earnings under U.S. GAAP is as
follows: Under Canadian GAAP, declines in fair values are generally presumed to be other than temporary if
they have persisted over a period of time and factors indicate that recovery is uncertain. Under
U.S. GAAP, securities are written down to quoted market value when there is an initial indication
that the decline is other than temporary. The following shows the net earnings in accordance with U.S. GAAP: 2004
    
    
    2003Net earnings, Canadian GAAP
    
    
    162,224
    
    
    
    152,957Other than temporary declines
    
    
    
    
    
    
    (10,629
    )Tax effect
    
    
    
    
    
    
    4,081Net earnings, U.S. GAAP
    
    
    162,224
    
    
    
    146,409Other comprehensive income (1)
    
    
    34,465
    
    
    
    6,644Comprehensive income, U.S. GAAP
    
    
    196,689
    
    
    
    153,053Net earnings per share, U.S. GAAP
    
    $
    3.87
    
    
    $
    3.07Net earnings per diluted share, U.S. GAAP
    
    $
    3.86
    
    
    $
    3.07
 
 (1)
    Consists of the change in the mark to market valuation of investments of
$39,044 (2003 - $16,077) and the change in the currency translation adjustment amount of
($4,579) (2003 - ($9,433)). Consolidated Balance Sheets Under Canadian GAAP, investments are carried at cost or amortized cost with a provision
for declines in value which are considered to be other than temporary. Under U.S. GAAP,
unrealized gains or losses on available for sale investments are recorded in a component of
shareholders equity. 25




---



##### 



The following shows the balance sheet amounts in accordance with U.S. GAAP, setting out
individual amounts where different from the amounts reported under Canadian GAAP: 2004
    
    
    2003AssetsSubsidiary cash and short term investments
    
    
    324,620
    
    
    
    421,517Bonds
    
    
    969,300
    
    
    
    786,280Preferred stocks
    
    
    155,350
    
    
    
    177,834Common stocks
    
    
    637,010
    
    
    
    398,260Investments pledged for securities sold but not yet purchased
    
    
    339,872
    
    
    
    All other assets
    
    
    2,105,840
    
    
    
    1,968,1364,531,992
    
    
    
    3,752,027LiabilitiesFuture income taxes
    
    
    10,226
    
    
    
    3,995All other liabilities
    
    
    3,562,347
    
    
    
    2,954,9533,572,573
    
    
    
    2,958,948Shareholders equity
    
    
    959,419
    
    
    
    793,0794,531,992
    
    
    
    3,752,027
 The difference in consolidated shareholders equity is as follows: 2004
    
    
    2003Shareholders equity based on Canadian GAAP
    
    
    861,667
    
    
    
    734,371Other comprehensive income
    
    
    104,300
    
    
    
    65,256Cumulative reduction in net earnings under U.S. GAAP
    
    
    (6,548
    )
    
    
    (6,548
    )Shareholders equity based on U.S. GAAP
    
    
    959,419
    
    
    
    793,079
 Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income
requires the company to disclose items of other comprehensive income in a financial statement and
to disclose accumulated balances of other comprehensive income in the equity section of financial
statements. Other comprehensive income includes (besides the currency translation account, which
is disclosed under Canadian GAAP) unrealized gains and losses on investments, as follows: 2004
    
    
    2003Unrealized gain on investments available for sale
    
    
    163,327
    
    
    
    105,930Related future income taxes
    
    
    (59,027
    )
    
    
    (40,674
    )104,300
    
    
    
    65,256
 Statement of Cash Flows There are no significant differences on the statement of cash flows under
U.S. GAAP as compared to Canadian GAAP.New Accounting
Standards Not Yet Adopted In January 2005, the Canadian Institute of Chartered Accountants published four new sections:
Section 1530,  Comprehensive Income;Section 3251, Equity;Section 3855, Financial
Instruments  Recognition and Measurement,and Section 3865, Hedges.These new standards
regarding recognition and measurement of financial instruments, hedging and comprehensive income
have been created to harmonize with the generally accepted accounting policies already used in
the United States. These new standards have to be adopted by the company at the latest for the
period beginning January 1, 2007, but early adoption is encouraged. The company is presently
evaluating the impact of these new standards. 18. Comparative Figures Certain comparative figures have been reclassified to be consistent with the current years
presentation. 26