##### 



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, 2005
 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 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:
  o þ
 þ o
 o þ
 þ
 o o þ
 o þ
   Class
    
    Number of Shares Outstanding at February 28, 2006Common Stock, $.01 Par Value
    
    100
 Documents Incorporated by Reference




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##### 



CRUM & FORSTER HOLDINGS CORP.
 Form 10-K
 Index
 STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
    
    
    4PART IITEM 1.
    
    BUSINESS
    
    
    5Overview
    
    
    5Corporate Structure
    
    
    5Lines of Business
    
    
    7Geographic Distribution
    
    
    9Business Development and Methods of Distribution
    
    
    10Pricing and Underwriting
    
    
    11Catastrophe Management
    
    
    13Reinsurance
    
    
    13Claims Management
    
    
    19Reserves
    
    
    20Asbestos, Environmental and Other Latent Exposures
    
    
    24Investments
    
    
    30Competition
    
    
    31Ratings
    
    
    32Insurance Regulatory Matters
    
    
    32Employees
    
    
    38ITEM 1A.
    
    RISK FACTORS
    
    
    38ITEM 2.
    
    PROPERTIES
    
    
    46ITEM 3.
    
    LEGAL PROCEEDINGS
    
    
    47Litigation
    
    
    47Insurance Industry Investigations
    
    
    47ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    48PART IIITEM 5.
    
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    48ITEM 6.
    
    SELECTED FINANCIAL DATA
    
    
    48ITEM 7.
    
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    49Critical Accounting Policies and Estimates
    
    
    49Summary of Operations
    
    
    56Results of Operations
    
    
    58Liquidity and Capital Resources
    
    
    65Contractual Obligations
    
    
    67Regulatory Issues
    
    
    68Off-Balance Sheet Arrangements
    
    
    68ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    69Interest Rate Risk
    
    
    69Equity Price Risk
    
    
    69Foreign Currency Exchange Rate Risk
    
    
    70ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    71Index to Consolidated Financial
Statements
    
    
    71Report of Independent Registered Public Accounting Firm
    
    
    72Consolidated Balance Sheets at December 31, 2005 and 2004
    
    
    73Consolidated Statements of Income for the Years Ended December 31, 2005, 2004 and 2003
    
    
    74Consolidated Statements of
Shareholders Equity for the Years Ended December 31, 2005, 2004 and 2003
    
    
    75Consolidated Statements of
Comprehensive Income for the Years Ended December 31, 2005, 2004 and 2003
    
    
    76
 2




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##### 



Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003
    
    
    77Notes to Consolidated Financial Statements
    
    
    78ITEM 9.
    
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    106ITEM 9A.
    
    CONTROLS AND PROCEDURES
    
    
    106Evaluation of Disclosure Controls and Procedures
    
    
    106Changes in Internal Control Over Financial Reporting
    
    
    106ITEM 9B.
    
    OTHER INFORMATION
    
    
    106PART IIIITEM 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    106Directors and Executive Officers
    
    
    106Key Employees of the Operating Companies
    
    
    107Audit Committee and Audit Committee Financial Expert
    
    
    107Compensation Committee
    
    
    108Compensation of Directors
    
    
    108Code of Ethics
    
    
    108ITEM 11.
    
    EXECUTIVE COMPENSATION
    
    
    108Executive Compensation
    
    
    108Long-Term Incentive Plan
    
    
    109Employment Agreements; Change of Control Arrangements
    
    
    110Compensation Committee Interlocks and Insider Participation
    
    
    111ITEM 12.
    
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    111ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    111Investment Agreements
    
    
    111Investments in and Transactions With Affiliates
    
    
    111Reinsurance Agreements
    
    
    112Claims Services and Management Agreements
    
    
    112Information Technology Services Agreement
    
    
    112Fairfax Insurance Coverage
    
    
    113Tax Sharing Agreements
    
    
    113Borrowing from Fairfax
    
    
    113Other Agreement
    
    
    113ITEM 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
    
    
    118POWER OF ATTORNEY
    
    
    118INDEX TO FINANCIAL STATEMENTS
AND RELATED FINANCIAL STATEMENT SCHEDULES
    
    
    119Report of Independent Registered Public Accounting Firm on Financial Statement Schedules
    
    
    120Schedule I  Summary of Investments Other Than Investments in Related Parties
    
    
    121Schedule II  Condensed
Balance Sheets of Crum & Forster Holdings Corp. at December 31,
2005 and 2004 (Parent Company Only)
    
    
    122Schedule II  Condensed
Statements of Income of Crum & Forster Holdings Corp. for the Years Ended December 31, 2005, 2004 and 2003 (Parent Company Only)
    
    
    123Schedule II  Condensed
Statements of Cash Flows of Crum & Forster Holdings Corp. for the Years Ended December 31, 2005, 2004 and 2003 (Parent Company Only)
    
    
    124Schedule V  Valuation and Qualifying Accounts
    
    
    125EXHIBITS
 3




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##### 



STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
  
    
    Lowering or loss of one of the Companys financial strength ratings;
    
    Insufficient loss reserves, including reserves for asbestos, environmental and other latent claims;
    
    Occurrence of natural or man-made catastrophic events;
    
    Inability to obtain reinsurance coverage on reasonable terms and prices, particularly property catastrophe reinsurance;
    
    Competitive conditions in the insurance market;
    
    Changes in the business or regulatory environment in which the Company operates as a
result of recent insurance industry investigations by government authorities and other
parties;
    
    Securities and Exchange Commission requests for information from the Company;
    
    Inability to realize the Companys investment objectives;
    
    Loss of key producers;
    
    Exposure to emerging claims and coverage issues;
    
    Restrictions on the ability of the Companys insurance subsidiaries to pay dividends;
    
    Subordination of debt securities to the obligations and liabilities of the Companys insurance subsidiaries;
    
    Exposure to credit risk, in the event reinsurers or policyholders that owe the Company
premiums or reimbursement of deductibles paid by the Company on their behalf fail to pay;
    
    Adverse developments in the prospects or results of operations of Fairfax or its affiliates;
    
    Loss of key employees;
    
    Changes in governmental regulations;
    
    Exposure to credit risks on novated policies; and
    
    Limited ability to borrow.
  4




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##### 



PART I
 ITEM 1. BUSINESS
 Overview
    Corporate Structure
    5




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##### 



:
 
 6




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##### 



Lines of Business
  Years Ended December 31,(dollars in millions)
    
    2005
    
    
    2004
    
    
    2003$
    
    
    %
    
    
    $
    
    
    %
    
    
    $
    
    
    %Workers compensation
    
    $
    275.3
    
    
    
    25.1
    %
    
    $
    311.3
    
    
    
    27.3
    %
    
    $
    288.0
    
    
    
    26.0
    %General liability
    
    
    262.8
    
    
    
    24.1
    
    
    
    252.8
    
    
    
    22.2
    
    
    
    254.9
    
    
    
    23.1Commercial automobile
    
    
    192.6
    
    
    
    17.5
    
    
    
    190.1
    
    
    
    16.7
    
    
    
    168.6
    
    
    
    15.3Property
    
    
    296.9
    
    
    
    27.0
    
    
    
    299.1
    
    
    
    26.3
    
    
    
    319.2
    
    
    
    28.9Commercial multi-peril
    
    
    51.0
    
    
    
    4.6
    
    
    
    52.1
    
    
    
    4.6
    
    
    
    42.9
    
    
    
    3.9Surety
    
    
    19.2
    
    
    
    1.7
    
    
    
    33.6
    
    
    
    2.9
    
    
    
    30.6
    
    
    
    2.8Total gross premiums written
    
    $
    1,097.8
    
    
    
    100.0
    %
    
    $
    1,139.0
    
    
    
    100.0
    %
    
    $
    1,104.2
    
    
    
    100.0
    %
 Workers compensation
 
    
    guaranteed cost products, in which policy premiums are fixed for the period of
coverage and do not vary as a result of the policyholders loss experience;
    
    large deductible policies; and
    
    retrospectively rated policies.
  
    
    the applicable premium rate, which varies according to the employees duties and the business of the employer;
    
    the policyholders experience modification factor (where applicable); and
    
    the policyholders payroll.
  7




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##### 



Years Ended December 31,2005
    
    2004
    
    2003Guaranteed cost
    
    
    84.7
    %
    
    
    78.3
    %
    
    
    80.6
    %Large deductible
    
    
    12.8
    
    
    
    15.4
    
    
    
    19.3Retrospectively rated
    
    
    2.5
    
    
    
    6.3
    
    
    
    0.1Total workers compensation
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  General liability
 Years Ended December 31,2005
    
    2004
    
    2003Umbrella liability
    
    
    33.7
    %
    
    
    34.0
    %
    
    
    30.8
    %Products liability
    
    
    8.6
    
    
    
    10.5
    
    
    
    7.9Directors and officers liability
    
    
    8.0
    
    
    
    9.7
    
    
    
    11.5Employment practices liability
    
    
    3.6
    
    
    
    3.8
    
    
    
    2.8All other general liability
    
    
    46.1
    
    
    
    42.0
    
    
    
    47.0Total general liability
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Commercial automobile
 Property
 8




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##### 



Years Ended December 31,2005
    
    2004
    
    2003Fire and allied lines
    
    
    82.9
    %
    
    
    80.9
    %
    
    
    82.2
    %Inland marine
    
    
    11.3
    
    
    
    12.4
    
    
    
    12.7Other
    
    
    5.8
    
    
    
    6.7
    
    
    
    5.1Total property
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Commercial multi-peril
 Surety
  Years Ended December 31,2005
    
    2004
    
    2003Contract bonds
    
    
    67.0
    %
    
    
    77.8
    %
    
    
    69.6
    %Bail bonds
    
    
    23.6
    
    
    
    13.6
    
    
    
    17.2Other commercial bonds
    
    
    9.4
    
    
    
    8.6
    
    
    
    13.2Total surety
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Geographic Distribution
  9




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##### 



Years Ended December 31,2005
    
    2004
    
    2003California
    
    
    20.1
    %
    
    
    22.0
    %
    
    
    22.6
    %Florida
    
    
    10.9
    
    
    
    9.8
    
    
    
    9.8New York
    
    
    10.0
    
    
    
    11.0
    
    
    
    10.5New Jersey
    
    
    8.6
    
    
    
    7.1
    
    
    
    7.2Texas
    
    
    7.5
    
    
    
    6.3
    
    
    
    7.0Pennsylvania
    
    
    5.4
    
    
    
    6.1
    
    
    
    6.2Illinois
    
    
    3.5
    
    
    
    4.1
    
    
    
    4.5Massachusetts
    
    
    3.4
    
    
    
    3.8
    
    
    
    3.4Georgia
    
    
    2.1
    
    
    
    2.5
    
    
    
    2.1Kentucky
    
    
    1.7
    
    
    
    1.6
    
    
    
    1.4All other states1
    
    
    26.8
    
    
    
    25.7
    
    
    
    25.3Total direct premiums written
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 1
    
    No other state comprised more than 2.2% of total direct premiums
written in 2004 or 2003.
    Business Development and Methods of Distribution
    10




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##### 



Years Ended December 31,2005
    
    2004
    
    2003Wholesale brokers
    
    
    40.1
    %
    
    
    33.5
    %
    
    
    32.2
    %Independent regional retail firms
    
    
    31.0
    
    
    
    31.6
    
    
    
    33.4National brokers
    
    
    28.9
    
    
    
    34.9
    
    
    
    34.4Total direct premiums written
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
   Years Ended December 31,(dollars in millions)
    
    2005
    
    2004
    
    2003Wholesale brokers
    
    $
    210.0
    
    $
    163.9
    
    $
    202.4Independent regional retail firms
    
    
    91.1
    
    
    123.8
    
    
    157.3National brokers
    
    
    84.3
    
    
    134.0
    
    
    178.8Total gross premiums written from new business
    
    $
    385.4
    
    $
    421.7
    
    $
    538.5
  Certain business practices of
the insurance industry have become the subject of investigation by government authorities and other
parties and the subject of class action litigation Securities and
Exchange Commission equests for information may adversely affect the Company
 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 .
    12




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##### 



Catastrophe Management
       Reinsurance
  13




---



##### 



Maximum Reinsured(dollars in millions)
    
    Maximum Retention
    
    Limits1General liability per risk:Umbrella
    
    $
    3.0
    
    
    $
    22.0Directors and officers liability  primary policies
    
    $
    2.0
    
    
    $
    8.0Directors and officers liability  excess policies
    
    Variable Quota Share2
    
    $
    8.0Workers compensation per occurrence
    
    $
    50.0
    
    
    $
    200.0Property per
risk3
    
    $
    2.0
    
    
    $
    23.0Surety per principal
    
    $
    7.5
    
    
    $
    7.5Surety per bond  commercial
    
    80% Quota
Share4
    
    $
    4.0Surety per bond  contract
    
    Variable Quota Share5
    
    $
    27.1
 1
    
    Represents the amount of loss protection above the net retention on an
excess of loss basis, unless otherwise noted. Certain layers within these reinsured
limits are subject to aggregate limits and reinstatement provisions.2
    
    The Company retains 40% of policies with limits up to $5 million and 20% of
policies with limits in excess of $5 million up to $10 million.3
    
    Effective March 1, 2006, the
Company increased its property per risk net retention to $5 million
from $2 million,
reducing the maximum reinsured limits to $20 million. The $5 million
excess of $5 million layer is 100% reinsured by nSpire Re Limited
(nSpire, formerly ORC Re Limited), a Fairfax affiliate.
In the prior treaty year, 7.5% of this layer was placed with nSpire
and 5% was placed with Odyssey America Reinsurance Corporation
(Odyssey America), another Fairfax affiliate.4
    
    The Companys maximum retention is 80% of $20 million, or $16 million. The
average retention at December 31, 2005 for bonds ceded to the current treaty year was
approximately $88,000 per bond.5
    
    The Companys percentage retention varies based on the bond limit, from 80% of
bond limits up to $2 million to 22.5% of bond limits in excess of $15 million up to $35
million. The average retention at December 31, 2005 for bonds ceded to the current
treaty year was approximately $1 million per bond.
    st The Company may be unable to obtain reinsurance coverage at
reasonable prices or on terms that adequately protect it
 Terrorism Risk Insurance Act of 2002 Catastrophic events could reduce net income
  14




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##### 



At December 31, 2005A.M. Best
    
    
    Security
    
    
    Reinsurance
    
    
    % of(dollars in millions)
    
    Rating1
    
    
    Provided
    
    
    Recoverable
    
    
    TotalInter-Ocean Reinsurance Company Limited
    
    2


 

    $
    455.6
    3
    
    $
    419.3
    
    
    
    19.9
    %North American Specialty Insurance Company
    

    A+
    
    
    
    193.9
    4
    
    
    377.0
    
    
    
    17.9TIG Insurance Company (TIG) 5
    

    B+
    
    
    
    
    
    
    
    142.5
    
    
    
    6.7Swiss Reinsurance America Corporation
    
    A+
    
    
    
    
    
    
    
    121.1
    
    
    
    5.7nSpire
    
    2




    
    106.5
    6
    
    
    111.0
    
    
    
    5.3General Reinsurance Corporation
    
    A++
    
    
    
    
    
    
    
    63.5
    
    
    
    3.0Lloyds Syndicates
    

    A
    
    
    
    
    
    
    
    56.7
    
    
    
    2.7Federal Insurance Company
    
    A++
    
    
    
    34.3
    4
    
    
    40.3
    
    
    
    1.9Odyssey America
    

    A
    
    
    
    
    
    
    
    35.6
    
    
    
    1.7IPCRe Limited
    

    A

    
    
    
    26.9
    7
    
    
    33.8
    
    
    
    1.6Other
    
    
    
    
    
    
    134.4
    8
    
    
    709.3
    9
    
    
    33.6Total reinsurance recoverable
    
    
    
    
    
    $
    951.6
    
    
    $
    2,110.1
    10
    
    
    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
March 9, 2006.2
    
    Not rated.3
    
    Includes the value of Delaware Reg. 1003 compliant trust accounts (Trusts) at
December 31, 2005 in the amount of $360 million, $57.8 million in letters of credit
and $37.8 million in funds held.4
    
    Funds held at December 31, 2005.5
    
    Effective December 16, 2002, International Insurance Company merged with TIG, a
Fairfax subsidiary. TIG had statutory capital and surplus at December 31, 2005 of
$597.3 million. These recoverable balances arise principally from a restructuring in
1993, prior to Fairfaxs acquisition of Crum & Forster. For further discussion, see
Note 9 to the consolidated financial statements included in Item 8. Financial
Statements and Supplementary Data.6
    
    Includes $72.4 million in letters of credit and the value of Trusts amounting
to $34.1 million, including $4.5 million received on January 26, 2006.7
    
    Includes $26.9 million in letters of credit.8
    
    Includes $122.7 million in letters of credit and $11.7
million in funds held.9
    
    92% of these recoverable balances, after applying the associated collateral,
are from companies having an A.M. Best rating of A- or better.10
    
    Includes reserve for uncollectible reinsurance of $34.4
million.
 Affiliated reinsurers
  15




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##### 



At December 31, 2005TotalReinsurance
    
    
    Paid
    
    
    Outstanding(dollars in millions)
    
    Recoverable
    
    
    Recoverable
    
    
    Reserves1
    
    
    CollateralTIG
    
    $
    142.5
    
    
    $
    1.2
    
    
    $
    141.3
    
    
    $
    nSpire
    
    
    111.0
    
    
    
    7.8
    
    
    
    103.2
    
    
    
    106.5Odyssey America
    
    
    35.6
    
    
    
    2.4
    
    
    
    33.2
    
    
    
    Fairmont Specialty Insurance Company (Fairmont,
formerly Ranger Insurance Company)
    
    
    14.9
    
    
    
    
    
    
    
    14.9
    
    
    
    Total affiliated reinsurance recoverable balances
    
    $
    304.0
    
    
    $
    11.4
    
    
    $
    292.6
    
    
    $
    106.5
 1
    
    Includes case and IBNR reserves.
  Corporate aggregate reinsurance
    16




---



##### 



Years Ended December 31,(dollars in millions)
    
    2005
    
    
    2004
    
    
    2003Premiums earned
    
    $
    
    
    
    $
    (7.6
    )
    
    $
    (0.1
    )Investment income
    
    
    (19.9
    )
    
    
    (30.5
    )
    
    
    (18.5
    )Losses and LAE
    
    
    (8.1
    )
    
    
    (28.3
    )
    
    
    (14.2
    )Income before income taxes
    
    $
    (11.8
    )
    
    $
    (9.8
    )
    
    $
    (4.4
    )
  (dollars in millions)2000 accident year prospective aggregate stop
loss contract
    
    $
    53.21998 prospective aggregate stop loss
contract
    
    
    367.5
    11998 aggregate stop loss contract amendment
    
    
    19.32001 retroactive adverse development contract for
$400 million
    
    
    377.02001 retroactive adverse development contract for
$100 million
    
    
    32.5Total
    
    $
    849.5
 1
    
    Includes $389 million which has been recognized as a reduction of losses and LAE
less $21.5 million for additional premiums due on retrospectively rated insurance policies
that inure to the benefit of the reinsurer. Total amounts recognized as a reduction of losses
and LAE include the $389 million above, $53.2 million on the 2000 accident year prospective
aggregate stop loss contract and $49.7 million of amortization of deferred gains on the
retroactive reinsurance contracts.
 Prospective corporate aggregate reinsurance
  Years Ended December 31,(dollars in millions)
    
    2005
    
    
    2004
    
    
    2003Ceded losses and LAE
    
    $
    
    
    
    $
    10.0
    
    
    $
    1.1Less: ceded premiums written and earned
    
    
    
    
    
    
    7.6
    
    
    
    0.1Less: funds held interest charged to investment income
    
    
    4.5
    
    
    
    9.2
    
    
    
    7.5Income before income taxes
    
    $
    (4.5
    )
    
    $
    (6.8
    )
    
    $
    (6.5
    )
 17




---



##### 



Retroactive corporate aggregate reinsurance
  Years Ended December 31,(dollars in millions)
    
    2005
    
    
    2004
    
    
    2003(Decrease) increase in reinsurance recoverable due from reinsurers
    
    $
    (26.7
    )
    
    $
    117.7
    
    
    $
    98.6Less: related premiums paid
    
    
    4.1
    
    
    
    56.5
    
    
    
    37.8Income deferred during the year
    
    
    (30.8
    )
    
    
    61.2
    
    
    
    60.8Amortization of deferred income
    
    
    (8.1
    )
    
    
    (18.3
    )
    
    
    (13.1
    )(Decrease) increase in deferred income
    
    
    (38.9
    )
    
    
    42.9
    
    
    
    47.7Deferred income on retroactive reinsurancebeginning of year
    
    
    223.4
    
    
    
    180.5
    
    
    
    132.8Deferred income on retroactive reinsuranceend of year
    
    $
    184.5
    
    
    $
    223.4
    
    
    $
    180.5Funds held interest charged during the year
    
    $
    15.4
    
    
    $
    21.3
    
    
    $
    11.0
   18




---



##### 



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 and reducing claims costs.
  19




---



##### 



At December 31,Pending Claims
    
    2005
    
    
    2004
    
    
    2003Workers compensation1
    
    
    11,265
    
    
    
    11,293
    
    
    
    10,475General liability
    
    
    4,603
    
    
    
    4,687
    
    
    
    6,219Commercial automobile
    
    
    5,590
    
    
    
    4,141
    
    
    
    3,920All other2
    
    
    3,278
    
    
    
    1,916
    
    
    
    1,690Total pending claims
    
    
    24,736
    
    
    
    22,037
    
    
    
    22,304
 1
    
    Excludes medical only claim counts.2
    
    Increase in the all other category is driven by property claims associated with
the 2005 and 2004 hurricanes.
 Years Ended December 31,New Claims
    
    2005
    
    
    2004
    
    
    2003Workers compensation1
    
    
    7,803
    
    
    
    8,053
    
    
    
    7,261General liability
    
    
    4,656
    
    
    
    3,647
    
    
    
    4,799Commercial automobile
    
    
    12,264
    
    
    
    11,845
    
    
    
    9,981All other
    
    
    4,005
    
    
    
    4,009
    
    
    
    4,098Total new claims
    
    
    28,728
    
    
    
    27,554
    
    
    
    26,139
 1
    
    Excludes medical only claim counts of 15,093, 17,957 and 17,333 for the
years ended December 31, 2005, 2004 and 2003, respectively.
  Reserves
     20




---



##### 



At December 31, 2005Low End
    
    
    High Endof
    
    
    ofActuarial
    
    
    Actuarial(dollars in millions)
    
    Reserves
    
    
    Range
    
    
    RangeGeneral liability
    
    $
    680.9
    
    
    $
    573.4
    
    
    $
    864.1Workers compensation
    
    
    774.6
    
    
    
    703.7
    
    
    
    823.6Asbestos, environmental and other latent
    
    
    475.1
    
    
    
    351.3
    
    
    
    619.2Commercial automobile
    
    
    208.0
    
    
    
    176.1
    
    
    
    232.4Property
    
    
    117.9
    
    
    
    102.7
    
    
    
    120.9Other
    
    
    225.6
    
    
    
    174.2
    
    
    
    246.1Net of per risk reinsurance, gross of corporate aggregate reinsurance
    
    
    2,482.1
    
    
    
    2,081.4
    
    
    
    2,906.3Corporate aggregate reinsurance
    
    
    491.8
    
    
    
    366.0
    
    
    
    502.2Total reserves, net of per risk reinsurance and corporate aggregate
reinsurance
    
    
    1,990.3
    
    
    $
    1,715.4
    
    
    $
    2,404.1Ceded unpaid losses and LAE
    
    
    1,682.7Gross unpaid losses and LAE
    
    $
    3,673.0
 Loss development data
  Years Ended December 31,(dollars in millions)
    
    2005
    
    
    2004
    
    
    2003Workers compensation
    
    $
    (1.4
    )
    
    $
    29.7
    
    
    $
    (18.6
    )General liability
    
    
    (5.1
    )
    
    
    75.0
    
    
    
    132.1Commercial automobile
    
    
    (19.5
    )
    
    
    (3.2
    )
    
    
    1.1Property
    
    
    (40.7
    )
    
    
    (27.2
    )
    
    
    6.4Commercial multi-peril
    
    
    (18.5
    )
    
    
    18.3
    
    
    
    10.9Other
    
    
    24.7
    
    
    
    5.0
    
    
    
    0.3Total (favorable) unfavorable development, net of per risk reinsurance
    
    
    (60.5
    )
    
    
    97.6
    
    
    
    132.2Amortization of deferred gain under retroactive corporate aggregate reinsurance
    
    
    (8.1
    )
    
    
    (18.3
    )
    
    
    (13.1
    )Cessions to prospective corporate aggregate reinsurance
    
    
    
    
    
    
    (10.0
    )
    
    
    (1.1
    )Total (favorable) unfavorable development, net of per risk and corporate
aggregate reinsurance
    
    
    (68.6
    )
    
    
    69.3
    
    
    
    118.0Add back: Per risk and corporate aggregate reinsurance
    
    
    88.7
    
    
    
    70.8
    
    
    
    (22.9
    )Total unfavorable development, gross of reinsurance
    
    $
    20.1
    
    
    $
    140.1
    
    
    $
    95.1
 Losses and loss adjustment
expenses
 21




---



##### 



22




---



##### 



Ten-year analysis of consolidated loss and LAE development presented net of reinsurance with
supplemental gross data
 At December 31,(dollars in millions)
    
    1995
    
    
    1996
    
    
    1997
    
    
    1998
    
    
    1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005Reserves for unpaid losses and LAE
(net of reinsurance recoverable)
    
    $
    2,212
    
    
    $
    2,414
    
    
    $
    2,420
    
    
    $
    2,532
    
    
    $
    2,225
    
    
    $
    1,770
    
    
    $
    1,577
    
    
    $
    1,494
    
    
    $
    1,873
    
    
    $
    2,010
    
    
    $
    1,990Paid (cumulative) as of:One year later
    
    
    513
    
    
    
    571
    
    
    
    580
    
    
    
    680
    
    
    
    757
    
    
    
    676
    
    
    
    454
    
    
    
    160
    
    
    
    460
    
    
    
    481Two years later
    
    
    896
    
    
    
    971
    
    
    
    1,076
    
    
    
    1,246
    
    
    
    1,300
    
    
    
    1,026
    
    
    
    533
    
    
    
    521
    
    
    
    809Three years later
    
    
    1,176
    
    
    
    1,340
    
    
    
    1,508
    
    
    
    1,654
    
    
    
    1,565
    
    
    
    1,097
    
    
    
    824
    
    
    
    795Four years later
    
    
    1,457
    
    
    
    1,674
    
    
    
    1,797
    
    
    
    1,922
    
    
    
    1,626
    
    
    
    1,328
    
    
    
    1,049Five years later
    
    
    1,714
    
    
    
    1,862
    
    
    
    2,005
    
    
    
    1,919
    
    
    
    1,850
    
    
    
    1,504Six years later
    
    
    1,853
    
    
    
    2,020
    
    
    
    1,953
    
    
    
    2,084
    
    
    
    2,023Seven years later
    
    
    1,984
    
    
    
    1,943
    
    
    
    2,087
    
    
    
    2,237Eight years later
    
    
    1,887
    
    
    
    2,068
    
    
    
    2,223Nine years later
    
    
    2,001
    
    
    
    2,196Ten years later
    
    
    2,122Liability re-estimated as of:One year later
    
    
    2,386
    
    
    
    2,419
    
    
    
    2,588
    
    
    
    2,546
    
    
    
    2,258
    
    
    
    1,953
    
    
    
    1,596
    
    
    
    1,611
    
    
    
    1,942
    
    
    
    1,941Two years later
    
    
    2,359
    
    
    
    2,579
    
    
    
    2,592
    
    
    
    2,536
    
    
    
    2,445
    
    
    
    1,969
    
    
    
    1,749
    
    
    
    1,718
    
    
    
    1,932Three years later
    
    
    2,490
    
    
    
    2,574
    
    
    
    2,583
    
    
    
    2,600
    
    
    
    2,460
    
    
    
    2,093
    
    
    
    1,857
    
    
    
    1,702Four years later
    
    
    2,479
    
    
    
    2,571
    
    
    
    2,597
    
    
    
    2,614
    
    
    
    2,584
    
    
    
    2,203
    
    
    
    1,836Five years later
    
    
    2,478
    
    
    
    2,581
    
    
    
    2,613
    
    
    
    2,735
    
    
    
    2,680
    
    
    
    2,180Six years later
    
    
    2,484
    
    
    
    2,584
    
    
    
    2,743
    
    
    
    2,801
    
    
    
    2,676Seven years later
    
    
    2,471
    
    
    
    2,713
    
    
    
    2,820
    
    
    
    2,809Eight years later
    
    
    2,608
    
    
    
    2,799
    
    
    
    2,832Nine years later
    
    
    2,703
    
    
    
    2,817Ten years later
    
    
    2,720Cumulative (deficiency)/redundancy
    
    
    (508
    )
    
    
    (403
    )
    
    
    (412
    )
    
    
    (277
    )
    
    
    (451
    )
    
    
    (410
    )
    
    
    (259
    )
    
    
    (208
    )
    
    
    (59
    )
    
    
    69
    
    
    
    -End of year:Gross liability
    
    
    3,268
    
    
    
    3,446
    
    
    
    3,600
    
    
    
    3,637
    
    
    
    3,529
    
    
    
    3,340
    
    
    
    3,454
    
    
    
    3,250
    
    
    
    3,194
    
    
    
    3,371
    
    
    
    3,673Reinsurance recoverable
    
    
    1,056
    
    
    
    1,032
    
    
    
    1,180
    
    
    
    1,105
    
    
    
    1,304
    
    
    
    1,570
    
    
    
    1,877
    
    
    
    1,756
    
    
    
    1,321
    
    
    
    1,361
    
    
    
    1,683Net liability
    
    
    2,212
    
    
    
    2,414
    
    
    
    2,420
    
    
    
    2,532
    
    
    
    2,225
    
    
    
    1,770
    
    
    
    1,577
    
    
    
    1,494
    
    
    
    1,873
    
    
    
    2,010
    
    
    
    1,990One year later:Gross re-estimated liability
    
    
    3,506
    
    
    
    3,667
    
    
    
    3,743
    
    
    
    3,751
    
    
    
    3,703
    
    
    
    3,715
    
    
    
    3,498
    
    
    
    3,344
    
    
    
    3,334
    
    
    
    3,391Re-estimated reinsurance recoverable
    
    
    1,120
    
    
    
    1,248
    
    
    
    1,155
    
    
    
    1,205
    
    
    
    1,445
    
    
    
    1,762
    
    
    
    1,902
    
    
    
    1,733
    
    
    
    1,392
    
    
    
    1,450Net re-estimated liability
    
    
    2,386
    
    
    
    2,419
    
    
    
    2,588
    
    
    
    2,546
    
    
    
    2,258
    
    
    
    1,953
    
    
    
    1,596
    
    
    
    1,611
    
    
    
    1,942
    
    
    
    1,941Two years later:Gross re-estimated liability
    
    
    3,690
    
    
    
    3,796
    
    
    
    3,820
    
    
    
    3,873
    
    
    
    4,037
    
    
    
    3,709
    
    
    
    3,631
    
    
    
    3,502
    
    
    
    3,350Re-estimated reinsurance recoverable
    
    
    1,331
    
    
    
    1,217
    
    
    
    1,228
    
    
    
    1,337
    
    
    
    1,592
    
    
    
    1,740
    
    
    
    1,882
    
    
    
    1,784
    
    
    
    1,418Net re-estimated liability
    
    
    2,359
    
    
    
    2,579
    
    
    
    2,592
    
    
    
    2,536
    
    
    
    2,445
    
    
    
    1,969
    
    
    
    1,749
    
    
    
    1,718
    
    
    
    1,932Three years later:Gross re-estimated liability
    
    
    3,796
    
    
    
    3,861
    
    
    
    3,904
    
    
    
    4,078
    
    
    
    4,024
    
    
    
    3,803
    
    
    
    3,781
    
    
    
    3,493Re-estimated reinsurance recoverable
    
    
    1,306
    
    
    
    1,287
    
    
    
    1,321
    
    
    
    1,478
    
    
    
    1,564
    
    
    
    1,710
    
    
    
    1,924
    
    
    
    1,791Net re-estimated liability
    
    
    2,490
    
    
    
    2,574
    
    
    
    2,583
    
    
    
    2,600
    
    
    
    2,460
    
    
    
    2,093
    
    
    
    1,857
    
    
    
    1,702Four years later:Gross re-estimated liability
    
    
    3,854
    
    
    
    3,936
    
    
    
    4,002
    
    
    
    4,052
    
    
    
    4,112
    
    
    
    3,962
    
    
    
    3,771Re-estimated reinsurance recoverable
    
    
    1,375
    
    
    
    1,365
    
    
    
    1,405
    
    
    
    1,438
    
    
    
    1,528
    
    
    
    1,759
    
    
    
    1,935Net re-estimated liability
    
    
    2,479
    
    
    
    2,571
    
    
    
    2,597
    
    
    
    2,614
    
    
    
    2,584
    
    
    
    2,203
    
    
    
    1,836Five years later:Gross re-estimated liability
    
    
    3,922
    
    
    
    3,993
    
    
    
    3,982
    
    
    
    4,131
    
    
    
    4,240
    
    
    
    3,948Re-estimated reinsurance recoverable
    
    
    1,444
    
    
    
    1,412
    
    
    
    1,369
    
    
    
    1,396
    
    
    
    1,560
    
    
    
    1,768Net re-estimated liability
    
    
    2,478
    
    
    
    2,581
    
    
    
    2,613
    
    
    
    2,735
    
    
    
    2,680
    
    
    
    2,180Six years later:Gross re-estimated liability
    
    
    3,960
    
    
    
    3,966
    
    
    
    4,074
    
    
    
    4,215
    
    
    
    4,248Re-estimated reinsurance recoverable
    
    
    1,476
    
    
    
    1,382
    
    
    
    1,331
    
    
    
    1,414
    
    
    
    1,572Net re-estimated liability
    
    
    2,484
    
    
    
    2,584
    
    
    
    2,743
    
    
    
    2,801
    
    
    
    2,676Seven years later:Gross re-estimated liability
    
    
    3,919
    
    
    
    4,064
    
    
    
    4,171
    
    
    
    4,239Re-estimated reinsurance recoverable
    
    
    1,448
    
    
    
    1,351
    
    
    
    1,351
    
    
    
    1,430Net re-estimated liability
    
    
    2,471
    
    
    
    2,713
    
    
    
    2,820
    
    
    
    2,809Eight years later:Gross re-estimated liability
    
    
    4,042
    
    
    
    4,173
    
    
    
    4,203Re-estimated reinsurance recoverable
    
    
    1,434
    
    
    
    1,374
    
    
    
    1,371Net re-estimated liability
    
    
    2,608
    
    
    
    2,799
    
    
    
    2,832Nine years later:Gross re-estimated liability
    
    
    4,161
    
    
    
    4,211Re-estimated reinsurance recoverable
    
    
    1,458
    
    
    
    1,394Net re-estimated liability
    
    
    2,703
    
    
    
    2,817Ten years later:Gross re-estimated liability
    
    
    4,197Re-estimated reinsurance recoverable
    
    
    1,477Net re-estimated liability
    
    
    2,720Gross cumulative deficiency
    
    
    (929
    )
    
    
    (765
    )
    
    
    (603
    )
    
    
    (602
    )
    
    
    (719
    )
    
    
    (608
    )
    
    
    (317
    )
    
    
    (243
    )
    
    
    (156
    )
    
    
    (20
    )
    
    
    -
 23




---



##### 



Asbestos, Environmental and Other Latent Exposures
 General
     Years Ended December 31,2005
    
    
    2004
    
    
    2003(dollars in millions)
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetUnpaid
latent losses and allocated LAE (ALAE), beginning of the year
    
    $
    681.4
    
    
    $
    516.0
    
    
    $
    666.5
    
    
    $
    491.9
    
    
    $
    577.6
    
    
    $
    398.9Latent losses and ALAE incurred during the year
    
    
    80.1
    
    
    
    44.6
    
    
    
    113.5
    
    
    
    100.5
    
    
    
    194.6
    
    
    
    153.6Latent losses and ALAE paid during the year
    
    
    143.9
    
    
    
    85.5
    
    
    
    98.6
    
    
    
    76.4
    
    
    
    105.7
    
    
    
    60.6Unpaid latent losses and ALAE, end of the year
    
    $
    617.6
    
    
    $
    475.1
    
    
    $
    681.4
    
    
    $
    516.0
    
    
    $
    666.5
    
    
    $
    491.9
   Asbestos
    
    Environmental
    
    Other Latent
    
    Total LatentNumber of policyholders
open at December 31, 2003
    
    
    430
    
    
    356
    
    
    214
    
    
    1,000Opened during the year
    
    
    154
    
    
    107
    
    
    84
    
    
    345Settled during the year
    
    
    132
    
    
    117
    
    
    111
    
    
    360Number of policyholders
open at December 31, 2004
    
    
    452
    
    
    346
    
    
    187
    
    
    985Opened during the year
    
    
    86
    
    
    63
    
    
    85
    
    
    234Settled during the year
    
    
    110
    
    
    141
    
    
    71
    
    
    322Number of policyholders
open at December 31, 2005
    
    
    428
    
    
    268
    
    
    201
    
    
    897
 24




---



##### 



Asbestos claims exposure
        25




---



##### 



At December 31, 2005Attachment Point
    
    Estimated % of
    
    Estimated % of(dollars in millions)
    
    Total Policies
    
    Total Policy Limits$0 to $1
    
    
    79.0
    %
    
    
    49.7
    %$1 to $10
    
    
    15.8
    
    
    
    37.9$10 to $20
    
    
    1.5
    
    
    
    4.1$20 to $50
    
    
    1.9
    
    
    
    4.1Above $50
    
    
    1.8
    
    
    
    4.2Total policies with asbestos claims
    
    
    100.0
    %
    
    
    100.0
    %
 Losses and loss adjustment expenses
    26




---



##### 



At December 31, 2005Average% of
    
    
    ReserveNumber of
    
    
    % of Total
    
    
    Total
    
    
    Total
    
    
    per(dollars in millions)
    
    Policyholders
    
    
    2005 Paid
    
    
    Reserves
    
    
    Reserves
    
    
    InsuredPolicyholders with settlement agreements:Structured settlements
    
    
    1
    
    
    
    0.0
    %
    
    $
    2.0
    
    
    
    0.4
    %
    
    $
    2.0Coverage in place
    
    
    3
    
    
    
    0.7
    
    
    
    18.0
    
    
    
    3.8
    
    
    $
    6.0Total policyholders with settlement agreements
    
    
    4
    
    
    
    0.7
    
    
    
    20.0
    
    
    
    4.2
    
    
    $
    5.0Other open policyholders:Active1
    
    
    189
    
    
    
    98.2
    
    
    
    283.3
    
    
    
    60.4
    
    
    $
    1.5Not active
    
    
    235
    
    
    
    0.5
    
    
    
    49.9
    
    
    
    10.6
    
    
    $
    0.2Total other open policyholders
    
    
    424
    
    
    
    98.7
    
    
    
    333.2
    
    
    
    71.0
    
    
    $
    0.8Additional unallocated IBNR
    
    
    
    
    
    
    
    
    
    
    98.8
    
    
    
    21.1Total direct unpaid losses and ALAE
    
    
    428
    
    
    
    99.4
    
    
    
    452.0
    2
    
    
    96.3Assumed reinsurance
    
    
    
    
    
    
    0.6
    
    
    
    17.2
    3
    
    
    3.7Total gross unpaid losses and ALAE
    
    
    
    
    
    
    100.0
    %
    
    $
    469.2
    
    
    
    100.0
    %
 1
    
    Policyholders with any past paid indemnity.2
    
    Includes $25.1 million that is reinsured with an affiliated company.3
    
    Represents amounts that are reinsured with an affiliated company.
    At December 31, 2005Number of
    
    
    Remaining(dollars in millions)
    
    Bankruptcies
    
    
    Policy LimitsNo insurance coverage issued to policyholder
    
    
    52
    
    
    $
    Resolved
    
    
    17
    
    
    
    Potential future exposure
    
    
    3
    
    
    
    26Total
    
    
    72
    
    
    $
    26
  27




---



##### 



At December 31, 2005Amounts
    
    AmountsSubject to
    
    Net ofSettlement
    
    Settlement(dollars in millions)
    
    Reported
    
    Agreements
    
    AgreementsNet unpaid losses and ALAE
    
    $
    376.8
    
    
    $
    10.1
    
    
    $
    366.73-year average net paid losses and ALAE
    
    $
    53.3
    
    
    $
    0.6
    
    
    $
    52.73-year survival ratios (before
remaining corporate aggregate
reinsurance protection)
    
    
    7.1
    
    
    
    
    
    
    
    7.0
  Net1 % of Total$
    
    
    % of TotalCrum & Forster (dollars in millions)Paid losses and ALAE at December 31, 2005
    
    $
    368.3
    
    
    
    49.4
    %Net unpaid losses and ALAE (case and IBNR) at December 31, 2005
    
    
    376.8
    
    
    
    50.6Ultimate losses and ALAE at December 31, 2005
    
    $
    745.1
    
    
    
    100.0
    %Industry, as represented by A.M. Best Company (A.M. Best)2(dollars in billions)Paid losses and ALAE at December 31, 2003
    
    $
    28.6
    
    
    
    44.0
    %Net unpaid losses and ALAE (case and IBNR) at December 31, 2003
    
    
    36.4
    
    
    
    56.0Ultimate losses and ALAE at December 31, 2003
    
    $
    65.0
    
    
    
    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 6, 2004.
  28




---



##### 



Environmental claims exposure
        29




---



##### 



December 31,(dollars in millions)
    
    2005Net unpaid losses and ALAE
    
    $
    74.33-year average net paid losses and ALAE
    
    
    16.73-year environmental survival ratio
    
    
    4.4
 Other latent claims exposure
    Summary
  Investments
      30




---



##### 



At December 31,Rating
    
    2005
    
    2004AAA/Aaa
    
    
    93.2
    %
    
    
    95.5
    %AA/Aa2
    
    
    
    
    
    
    0.1A/A2
    
    
    
    
    
    
    BBB/Baa2
    
    
    
    
    
    
    BB/Ba2
    
    
    1.0
    
    
    
    0.7B/B2
    
    
    
    
    
    
    CCC/Caa or lower, or not rated
    
    
    5.8
    
    
    
    3.7Total fixed income securities
    
    
    100.0
    %
    
    
    100.0
    %
  Investment results
 Competition
 rd th
    31




---



##### 



The Company operates in a highly competitive
environment, which makes it more difficult to attract and retain business
 Ratings
    Insurance Regulatory Matters
  General
   32




---



##### 



Possible legislative and regulatory changes
     Certain business practices of the insurance
industry have become the subject of investigation by government authorities and other parties and
the subject of class action litigation
  Recent regulatory examinations
   33




---



##### 



Regulation of dividends and other payments from the Companys insurance subsidiaries
    34




---



##### 



Capital adequacy
     NAIC IRIS ratios
  35




---



##### 



Investment regulation
  Guaranty funds
   Shared markets
    36




---



##### 



Insurance regulation concerning change or acquisition of control
  Terrorism Risk Insurance Act of 2002
   37




---



##### 



Catastrophic events could reduce net income
 Employees
  ITEM 1A. RISK FACTORS
  If there are any negative changes in the financial strength ratings of the Companys insurance
subsidiaries, especially in the ratings issued by A.M. Best, it could be very difficult for the
Company to write quality new or renewal business, secure adequate reinsurance on acceptable terms
and retain its key management and employees.
   38




---



##### 



The Company may incur a reduction in its net income if its reserves are insufficient.
  Losses and loss adjustment expenses
   Reserves for asbestos, environmental and other latent claims may be insufficient.
  39




---



##### 



Catastrophic events could reduce net income.
   40




---



##### 



The Company may be unable to obtain reinsurance coverage at reasonable prices or on terms that
adequately protect it.
  st
 Catastrophic events could
reduce net income
 The Company operates in a highly competitive environment, which makes it more difficult to attract
and retain business.
  41




---



##### 



Results in the property and casualty insurance industry are subject to fluctuations and
uncertainty, which may adversely affect managements ability to write policies.
  Certain business practices of the insurance industry have become the subject of investigation by
government authorities and other parties and the subject of class action litigation.
    42




---



##### 



Securities
and Exchange Commission (SEC) requests for information may adversely affect the Company
 Securities and Exchange Commission (SEC) requests for information may adversely affect the
Company.
     If the Company is unable to realize its investment objectives, its net income and financial
condition may be adversely affected.
  The loss of any of the Companys key producers could have an adverse effect on the Companys
ability to generate business.
  The effects of emerging claim and coverage issues on the Companys business are uncertain.
  43




---



##### 



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.
  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, and any other
subsidiary that does not guarantee the Companys debt securities.
  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.
   44




---



##### 



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, subject to insurance and other
regulatory approvals;
    
    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, subject to obtaining insurance
regulatory authority approval or non-disapproval, where necessary;
and
    
    Entering into transactions with Fairfax or its affiliates, subject to obtaining
insurance regulatory authority approval or non-disapproval, where
necessary.
  The Companys business could be adversely affected by the loss of one or more key employees.
  The Company is subject to extensive government regulation, which may limit the rates it can charge
or otherwise adversely affect its business.
  45




---



##### 



If certain policies with respect to which other insurance companies have assumed liability from
Crum & Forster have not been effectively novated, the Company could be subject to increased
liabilities that are not reflected on the balance sheet, including with respect to asbestos,
environmental or other latent exposures.
   Fairfaxs bank credit facility and the indenture governing the Companys debt securities contain
restrictions applicable to the Company, which could have an adverse effect on its financial
condition.
  ITEM 2. PROPERTIES
    46




---



##### 



ITEM 3. LEGAL PROCEEDINGS
 Litigation
    Insurance Industry Investigations
     Securities and Exchange Commission (SEC)
requests for information may adversely affect the Company Certain
business practices of the insurance industry have become the subject of investigation by government
authorities and other parties and the subject of class action litigation
 47




---



##### 



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
   Years Ended December 31,(dollars in thousands)
    
    
    
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001GAAP STATEMENT OF INCOME
DATA:Gross premiums written
    
    
    
    
    
    $
    1,097,756
    
    
    $
    1,138,961
    
    
    $
    1,104,211
    
    
    $
    898,368
    
    
    $
    777,536Net premiums written
    
    
    
    
    
    $
    868,966
    
    
    $
    918,300
    
    
    $
    890,823
    
    
    $
    669,473
    
    
    $
    541,473Premiums earned
    
    
    
    
    
    $
    894,173
    
    
    $
    907,709
    
    
    $
    768,872
    
    
    $
    609,512
    
    
    $
    500,175Investment income and realized investment
gains and losses1
    
    
    
    
    
    $
    215,310
    
    
    $
    164,638
    
    
    $
    338,062
    
    
    $
    155,325
    
    
    $
    113,813Losses and LAE
    
    
    
    
    
    $
    615,505
    
    
    $
    761,512
    
    
    $
    652,334
    
    
    $
    460,458
    
    
    $
    601,674Policy acquisition costs and other
underwriting expenses
    
    
    
    
    
    $
    254,452
    
    
    $
    252,987
    
    
    $
    225,261
    
    
    $
    194,482
    
    
    $
    86,685Income (loss) before cumulative effect of
a change in accounting principle
    
    
    
    
    
    $
    155,936
    
    
    $
    24,195
    
    
    $
    135,745
    
    
    $
    82,911
    
    
    $
    (106,509
    )Equity in earnings of investees, net of tax
    
    
    
    
    
    $
    17,193
    
    
    $
    12,478
    
    
    $
    1,567
    
    
    $
    
    
    
    $
    Cumulative effect of a change in
accounting principle
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    64,809
    2
    
    $
    Net income (loss)
    
    
    
    
    
    $
    155,936
    
    
    $
    24,195
    
    
    $
    135,745
    
    
    $
    147,720
    
    
    $
    (106,509
    )
 At December 31,(dollars in thousands)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001GAAP BALANCE SHEET DATA:Total investments (including
cash and cash equivalents)
    
    $
    3,223,635
    
    
    $
    3,217,610
    
    
    $
    3,168,389
    
    
    $
    2,422,590
    
    
    $
    2,280,092Total assets
    
    $
    6,482,879
    
    
    $
    6,031,641
    
    
    $
    5,587,398
    
    
    $
    5,138,787
    
    
    $
    5,147,959Unpaid losses and LAE
    
    $
    3,673,034
    
    
    $
    3,370,936
    
    
    $
    3,193,920
    
    
    $
    3,249,558
    
    
    $
    3,453,797Long term debt3
    
    $
    292,470
    
    
    $
    291,841
    
    
    $
    291,257
    
    
    $
    
    
    
    $
    Shareholders equity
    
    $
    961,193
    
    
    $
    881,189
    
    
    $
    906,115
    
    
    $
    979,164
    
    
    $
    719,605
 48




---



##### 



Years Ended December 31,2005
    
    
2004
    
    
2003
    
    
2002
    
    
2001SELECTED FINANCIAL RATIOS BASED ON GAAP DATA:Loss and LAE ratio
    
    
    68.8
    %
    
    
    83.9
    %
    
    
    84.8
    %
    
    
    75.5
    %
    
    
    120.3
    %Underwriting expense ratio
    
    
    28.5
    
    
    
    27.9
    
    
    
    29.3
    
    
    
    31.9
    
    
    
    37.3Combined ratio
    
    
    97.3
    %
    
    
    111.8
    %
    
    
    114.1
    %
    
    
    107.4
    %
    
    
    157.6
    %Ratio of earnings to fixed charges4
    
    
    4.4
    x
    
    
    1.3
    x
    
    
    6.2
    x
    
    
    6.6
    x
    
    
    
    5Years Ended December 31,(dollars in thousands)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001SELECTED COMBINED
STATUTORY DATA:Loss and LAE ratio
    
    
    69.4
    %
    
    
    86.1
    %
    
    
    84.5
    %
    
    
    77.6
    %
    
    
    143.1
    %Underwriting expense ratio
    
    
    28.4
    
    
    
    27.7
    
    
    
    27.3
    
    
    
    31.2
    
    
    
    36.9Combined ratio
    
    
    97.8
    %
    
    
    113.8
    %
    
    
    111.8
    %
    
    
    108.8
    %
    
    
    180.0
    %Policyholders surplus
    
    $
    1,313,988
    
    
    $
    1,206,547
    
    
    $
    1,107,435
    
    
    $
    856,393
    
    
    $
    708,388Ratio of net premiums
written to policyholders
surplus
    
    
    0.66
    x
    
    
    0.76
    x
    
    
    0.80
    x
    
    
    0.78
    x
    
    
    0.77
    x
 1
    
    Includes $40,725 of gains in 2003 from the sale of Hub International
Limited securities to an affiliate.2
    
    Represents remaining unamortized negative goodwill resulting from the
acquisition of Crum & Forster by Fairfax in 1998.3
    
    Aggregate principal amount of $300 million of the Companys 10-3/8% senior
notes due 2013, less unamortized original issue discount. There have been no
borrowings under the Fairfax note. For further information on the Fairfax note, see
Item 13. Certain Relationships and Related Transactions
 Borrowing from Fairfax.4
    
    For purposes of determining the ratio of earnings to fixed charges, earnings
includes 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.5
    
    Due to the loss in the year ended December 31, 2001, the ratio coverage was
less than 1:1. Additional earnings of $170.1 million would have achieved a coverage
ratio of 1:1.
 ITEM
7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Critical Accounting Policies and Estimates
   49




---



##### 



Unpaid losses and loss adjustment expenses
        50




---



##### 



Change in Ultimate LossLine of business
    
    Accident Years
    
    
    and ALAE (millions)Workers Compensation
    
    
    1998-2005
    
    
    $
    29.1General Liability1
    
    
    1998-2005
    
    
    $
    34.8Commercial Automobile
    
    
    2004-2005
    
    
    $
    6.9
  1
    
    Excludes asbestos, environmental and other latent.  51




---



##### 



Asbestos reserves
 Asbestos reserves
   52




---



##### 




   53




---



##### 



Environmental reserves
      Other latent reserves
     Other than temporary declines in value of investments
 ,
 54




---



##### 



Reinsurance recoverable
     55




---



##### 



Deferred income tax assets
    Summary of Operations
     56




---



##### 



57




---



##### 



Results of Operations
  Years Ended December 31,(dollars in millions)
    
    2005
    
    
    2004
    
    
    2003Gross premiums written
    
    $
    1,097.8
    
    
    $
    1,139.0
    
    
    $
    1,104.2Net premiums written
    
    $
    869.0
    
    
    $
    918.3
    
    
    $
    890.8Premiums earned
    
    $
    894.2
    
    
    $
    907.7
    
    
    $
    768.9Losses and LAE
    
    
    615.5
    
    
    
    761.5
    
    
    
    652.3Underwriting expenses
    
    
    254.5
    
    
    
    253.0
    
    
    
    225.3Underwriting profit (loss)
    
    
    24.2
    
    
    
    (106.8
    )
    
    
    (108.7
    )Investment income and realized investment gains and losses1
    
    
    215.3
    
    
    
    164.6
    
    
    
    338.1Interest and other expense
    
    
    35.5
    
    
    
    41.6
    
    
    
    24.6Income before income taxes and equity in earnings of investees
    
    
    204.0
    
    
    
    16.2
    
    
    
    204.8Income tax expense
    
    
    65.3
    
    
    
    4.5
    
    
    
    70.6Income before equity in earnings of investees
    
    
    138.7
    
    
    
    11.7
    
    
    
    134.2Equity in earnings of investees, net of tax
    
    
    17.2
    
    
    
    12.5
    
    
    
    1.5Net income
    
    $
    155.9
    
    
    $
    24.2
    
    
    $
    135.7Combined ratio
    
    
    97.3
    %
    
    
    111.8
    %
    
    
    114.1
    %
 1
    
    Includes $40.7 million of gains in 2003 from the sale of Hub International
Limited securities to an affiliate.
   Losses and loss
adjustment expenses Investment results
 58




---



##### 



Underwriting results
 Gross premiums written
  Years Ended December 31,2005
    
    
    
    
    
    
    2004Increase/
    
    
    
    
    
    
    Increase/(dollars in millions)
    
    2005
    
    
    2004
    
    
    (Decrease)
    
    
    2003
    
    
    (Decrease)Workers compensation
    
    $
    275.3
    
    
    $
    311.3
    
    
    $
    (36.0
    )
    
    $
    288.0
    
    
    $
    23.3General liability
    
    
    262.8
    
    
    
    252.8
    
    
    
    10.0
    
    
    
    254.9
    
    
    
    (2.1
    )Commercial automobile
    
    
    192.6
    
    
    
    190.1
    
    
    
    2.5
    
    
    
    168.6
    
    
    
    21.5Property
    
    
    296.9
    
    
    
    299.1
    
    
    
    (2.2
    )
    
    
    319.2
    
    
    
    (20.1
    )Commercial multi-peril
    
    
    51.0
    
    
    
    52.1
    
    
    
    (1.1
    )
    
    
    42.9
    
    
    
    9.2Surety
    
    
    19.2
    
    
    
    33.6
    
    
    
    (14.4
    )
    
    
    30.6
    
    
    
    3.0Total gross premiums written
    
    $
    1,097.8
    
    
    $
    1,139.0
    
    
    $
    (41.2
    )
    
    $
    1,104.2
    
    
    $
    34.8
   Casualty gross premiums written
    Property gross premiums written
  59




---



##### 



Net premiums written
  Years Ended December 31,2005
    
    
    2004
    
    
    2003(dollars in millions)
    
    $
    
    
    %1
    
    
    $
    
    
    %1
    
    
    $
    
    
    %1Workers compensation
    
    $
    266.7
    
    
    
    96.9
    %
    
    $
    288.7
    
    
    
    92.7
    %
    
    $
    267.6
    
    
    
    92.9
    %General liability
    
    
    208.6
    
    
    
    79.4
    %
    
    
    198.6
    
    
    
    78.6
    %
    
    
    191.6
    
    
    
    75.2
    %Commercial automobile
    
    
    189.0
    
    
    
    98.1
    %
    
    
    182.7
    
    
    
    96.1
    %
    
    
    155.1
    
    
    
    92.0
    %Property
    
    
    145.8
    
    
    
    49.1
    %
    
    
    184.3
    
    
    
    61.6
    %
    
    
    223.0
    
    
    
    69.9
    %Commercial multi-peril
    
    
    45.7
    
    
    
    89.6
    %
    
    
    47.1
    
    
    
    90.4
    %
    
    
    33.5
    
    
    
    78.1
    %Surety
    
    
    13.2
    
    
    
    68.6
    %
    
    
    24.5
    
    
    
    72.9
    %
    
    
    20.1
    
    
    
    65.7
    %Total before corporate aggregate
reinsurance premiums
    
    
    869.0
    
    
    
    79.2
    %
    
    
    925.9
    
    
    
    81.3
    %
    
    
    890.9
    
    
    
    80.7
    %Corporate aggregate reinsurance premiums
    
    
    
    
    
    
    
    
    
    
    (7.6
    )
    
    
    
    
    
    
    (0.1
    )Total net premiums written
    
    $
    869.0
    
    
    
    79.2
    %
    
    $
    918.3
    
    
    
    80.6
    %
    
    $
    890.8
    
    
    
    80.7
    %
 1
    
    Percentage represents the percentage of net premiums written to gross premiums
written.
   Premiums earned
  Years Ended December 31,(dollars in millions)
    
    2005
    
    
    2004
    
    
    2003Workers compensation
    
    $
    285.8
    
    
    $
    285.6
    
    
    $
    211.0General liability
    
    
    203.7
    
    
    
    202.2
    
    
    
    165.2Commercial automobile
    
    
    186.6
    
    
    
    175.6
    
    
    
    132.3Property
    
    
    151.6
    
    
    
    187.2
    
    
    
    209.1Commercial multi-peril
    
    
    45.6
    
    
    
    42.8
    
    
    
    33.1Surety
    
    
    20.9
    
    
    
    21.9
    
    
    
    18.3Total before corporate aggregate reinsurance premiums
    
    
    894.2
    
    
    
    915.3
    
    
    
    769.0Corporate aggregate reinsurance premiums
    
    
    
    
    
    
    (7.6
    )
    
    
    (0.1
    )Total premiums earned
    
    $
    894.2
    
    
    $
    907.7
    
    
    $
    768.9
  60




---



##### 



Losses and loss adjustment expenses
  Years Ended December 31,2005
    
    
    2004
    
    
    2003(dollars in millions)
    
    Losses
    
    
    Ratio
    
    
    Losses
    
    
    Ratio
    
    
    Losses
    
    
    RatioAccident year, as reported
    
    $
    684.1
    
    
    
    76.5
    %
    
    $
    692.2
    
    
    
    75.7
    %
    
    $
    534.3
    
    
    
    69.5
    %(Favorable) adverse development of prior
years losses and LAE before impact of
corporate aggregate reinsurance:Accident year 2004
    
    
    (59.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accident year 2003
    
    
    5.6
    
    
    
    
    
    
    
    (37.5
    )
    
    
    
    
    
    
    Accident year 2002
    
    
    4.5
    
    
    
    
    
    
    
    (1.7
    )
    
    
    
    
    
    
    (34.9
    )Accident year 2001
    
    
    2.4
    
    
    
    
    
    
    
    (1.8
    )
    
    
    
    
    
    
    56.8Accident year 2000
    
    
    (16.1
    )
    
    
    
    
    
    
    32.4
    
    
    
    
    
    
    
    2.4Accident year 1999 and prior
    
    
    2.3
    
    
    
    
    
    
    
    106.2
    
    
    
    
    
    
    
    107.9Total (favorable) adverse development
    
    
    (60.5
    )
    
    
    (6.8
    )
    
    
    97.6
    
    
    
    10.7
    
    
    
    132.2
    
    
    
    17.2Impact of corporate aggregate reinsurance:Amortization of deferred gain
    
    
    (8.1
    )
    
    
    
    
    
    
    (18.3
    )
    
    
    
    
    
    
    (13.1
    )Cessions to prospective reinsurance contracts
    
    
    
    
    
    
    
    
    
    
    (10.0
    )
    
    
    
    
    
    
    (1.1
    )Total impact of corporate aggregate
reinsurance
    
    
    (8.1
    )
    
    
    (0.9
    )
    
    
    (28.3
    )
    
    
    (2.5
    )
    
    
    (14.2
    )
    
    
    (1.9
    )Incurred losses and LAE
    
    $
    615.5
    
    
    
    68.8
    %
    
    $
    761.5
    
    
    
    83.9
    %
    
    $
    652.3
    
    
    
    84.8
    %
   61




---



##### 



Accident Years Ended December 31,2005
    
    2004
    
    2003Workers compensation
    
    
    73.8
    %
    
    
    67.2
    %
    
    
    70.3
    %General liability
    
    
    69.0
    %
    
    
    68.5
    %
    
    
    80.9
    %Commercial automobile
    
    
    63.6
    %
    
    
    61.7
    %
    
    
    65.1
    %Property
    
    
    112.7
    %
    
    
    79.5
    %
    
    
    46.1
    %Commercial multi-peril
    
    
    59.2
    %
    
    
    50.7
    %
    
    
    68.3
    %Surety
    
    
    76.2
    %
    
    
    112.3
    %
    
    
    84.5
    %Accident year loss and LAE ratio
    
    
    76.5
    %
    
    
    69.3
    %
    
    
    65.3
    %
 Losses and loss
adjustment expenses
   62




---



##### 



Underwriting expenses
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Policy acquisition ratio
    
    
    14.1
    %
    
    
    13.6
    %
    
    
    12.8
    %Other underwriting expense ratio
    
    
    14.4
    
    
    
    14.3
    
    
    
    16.5Underwriting expense
ratio
    
    
    28.5
    %
    
    
    27.9
    %
    
    
    29.3
    %
   Investment results
  Years Ended December 31,(dollars in millions)
    
    2005
    
    
    2004
    
    
    2003Average investments, including cash and cash equivalents, at book value
    
    $
    3,135.0
    
    
    $
    3,101.1
    
    
    $
    2,667.1Investment income
    
    $
    131.1
    
    
    $
    85.1
    
    
    $
    69.9Realized investment gains
    
    
    84.2
    
    
    
    79.5
    
    
    
    268.2Pre-tax equity in earnings of investees
    
    
    26.5
    
    
    
    19.2
    
    
    
    2.4Change in unrealized investment gains and losses
and foreign currency translation
    
    
    (3.7
    )
    
    
    19.0
    
    
    
    25.7Total return on investments
    
    $
    238.1
    
    
    $
    202.8
    
    
    $
    366.2Gross investment yield1
    
    
    6.3
    %
    
    
    4.7
    %
    
    
    3.7
    %Net investment yield1
    
    
    5.0
    %
    
    
    3.4
    %
    
    
    2.7
    %Total return on investments
    
    
    7.6
    %
    
    
    6.5
    %
    
    
    13.7
    %
 1
    
    Including pre-tax equity in earnings of investees.
 .
 63




---



##### 



Interest and other expense
  64




---



##### 



Income tax expense
  Liquidity and Capital Resources
 Holding company
       65




---



##### 



Insurance subsidiaries
       66




---



##### 



.
    Years Ended December 31,(dollars in millions)
    
    2005
    
    2004
    
    2003Combined policyholders surplus
    
    $
    1,314.0
    
    
    $
    1,206.5
    
    
    $
    1,107.4Statutory operating leverage
    
    
    0.66x
    
    
    
    0.76x
    
    
    
    0.80x
  Contractual Obligations
  2007 to
    
    
    2009 to
    
    
    2011 and(dollars in millions)
    
    Total
    
    
    2006
    
    
    2008
    
    
    2010
    
    
    beyondUnpaid losses and LAE
    
    $
    3,673.0
    
    
    $
    784.1
    
    
    $
    950.5
    
    
    $
    538.6
    
    
    $
    1,399.8Long-term debt, including interest payments
    
    
    533.4
    
    
    
    31.1
    
    
    
    62.3
    
    
    
    62.3
    
    
    
    377.7Operating leases
    
    
    79.8
    
    
    
    12.2
    
    
    
    15.7
    
    
    
    11.0
    
    
    
    40.9Short-sale obligations
    
    
    329.7
    
    
    
    329.7
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0Other long-term liabilities
    
    
    24.0
    
    
    
    3.7
    
    
    
    2.1
    
    
    
    13.3
    
    
    
    4.9Total contractual obligations
    
    $
    4,639.9
    
    
    $
    1,160.8
    
    
    $
    1,030.6
    
    
    $
    625.2
    
    
    $
    1,823.3
 67




---



##### 



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
  Short-sale obligations
 Investment results
 Other long-term liabilities
    Regulatory Issues
  Off-Balance Sheet Arrangements
  68




---



##### 



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Interest Rate Risk
  At December 31, 2005Fair Valueof Fixed Income
    
    Hypothetical
    
    Hypothetical(dollars in millions)
    
    Portfolio
    
    $ Change
    
    % Change200 basis point decline
    
    $
    2,593.1
    
    
    $
    602.0
    
    
    
    30.2
    %100 basis point decline
    
    $
    2,263.7
    
    
    $
    272.6
    
    
    
    13.7
    %Base scenario
    
    $
    1,991.1
    
    
    $
    
    
    
    
    
    %100 basis point increase
    
    $
    1,764.4
    
    
    $
    (226.7
    )
    
    
    (11.4
    )%200 basis point increase
    
    $
    1,575.1
    
    
    $
    (416.0
    )
    
    
    (20.9
    )%
  Equity Price Risk
   69




---



##### 



Foreign Currency Exchange Rate Risk
  70




---



##### 



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Page NumberReport of Independent Registered Public Accounting Firm
    
    
    72Consolidated Balance Sheets at December 31, 2005 and 2004
    
    
    73Consolidated Statements of Income for the Years Ended December 31, 2005, 2004 and 2003
    
    
    74Consolidated Statements of Shareholders Equity for the Years Ended December 31, 2005, 2004 and 2003
    
    
    75Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2005, 2004 and 2003
    
    
    76Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003
    
    
    77Notes to Consolidated Financial Statements
    
    
    78
 71




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
  
 72




---



##### 



CRUM & FORSTER HOLDINGS CORP.
 CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except per share amounts)
 At December 31,2005
    
    
    2004ASSETSInvestments:Fixed income securities, at fair value (amortized cost of $2,073,443 and
$2,062,246 in 2005 and 2004, respectively)
    
    $
    1,991,118
    
    
    $
    2,039,846Equity securities, at fair value (cost of $503,942 and $378,598 in 2005 and
2004, respectively)
    
    
    595,944
    
    
    
    455,153Other invested assets
    
    
    391,132
    
    
    
    293,406Total investments
    
    
    2,978,194
    
    
    
    2,788,405Cash and cash equivalents
    
    
    245,441
    
    
    
    429,205Assets pledged for short-sale obligations
    
    
    496,903
    
    
    
    277,899Premiums receivable
    
    
    245,795
    
    
    
    263,420Reinsurance recoverable
    
    
    1,806,082
    
    
    
    1,609,013Reinsurance recoverable from affiliates
    
    
    304,033
    
    
    
    195,799Prepaid reinsurance premiums
    
    
    31,308
    
    
    
    35,142Deferred income taxes
    
    
    175,207
    
    
    
    173,957Deferred policy acquisition costs
    
    
    70,807
    
    
    
    75,006Other assets
    
    
    129,109
    
    
    
    183,795Total assets
    
    $
    6,482,879
    
    
    $
    6,031,641LIABILITIESUnpaid losses and loss adjustment expenses
    
    $
    3,673,034
    
    
    $
    3,370,936Unearned premiums
    
    
    499,551
    
    
    
    528,592Funds held under reinsurance contracts
    
    
    277,868
    
    
    
    277,296Accounts payable and other liabilities
    
    
    264,525
    
    
    
    241,049Deferred income on retroactive reinsurance
    
    
    184,498
    
    
    
    223,360Short-sale obligations
    
    
    329,740
    
    
    
    217,378Long-term debt
    
    
    292,470
    
    
    
    291,841Total liabilities
    
    
    5,521,686
    
    
    
    5,150,452SHAREHOLDER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, net of tax
    
    
    53,443
    
    
    
    55,875Retained earnings
    
    
    166,757
    
    
    
    84,321Total shareholders equity
    
    
    961,193
    
    
    
    881,189Total liabilities and shareholders equity
    
    $
    6,482,879
    
    
    $
    6,031,641
 The accompanying notes are an integral part of the consolidated financial statements.
 73




---



##### 



CRUM & FORSTER HOLDINGS CORP.
 CONSOLIDATED STATEMENTS OF INCOME
 (Dollars in thousands)
 Years Ended December 31,2005
    
    
    2004
    
    
    2003REVENUESPremiums earned
    
    $
    894,173
    
    
    $
    907,709
    
    
    $
    768,872Investment income
    
    
    131,123
    
    
    
    85,101
    
    
    
    69,902Realized investment gains, including $40,725 of gains in
2003 from the sale of Hub International Limited securities
to an affiliate
    
    
    84,187
    
    
    
    79,537
    
    
    
    268,160Total revenues
    
    
    1,109,483
    
    
    
    1,072,347
    
    
    
    1,106,934EXPENSESLosses and loss adjustment expenses
    
    
    615,505
    
    
    
    761,512
    
    
    
    652,334Policy acquisition costs
    
    
    125,804
    
    
    
    123,174
    
    
    
    98,683Other underwriting expenses
    
    
    128,648
    
    
    
    129,813
    
    
    
    126,578Interest expense
    
    
    32,915
    
    
    
    33,159
    
    
    
    18,677Other expense
    
    
    2,548
    
    
    
    8,456
    
    
    
    5,870Total expenses
    
    
    905,420
    
    
    
    1,056,114
    
    
    
    902,142Income before income taxes and equity in earnings of investees
    
    
    204,063
    
    
    
    16,233
    
    
    
    204,792Income tax expense
    
    
    65,320
    
    
    
    4,516
    
    
    
    70,614Income before equity in earnings of investees
    
    
    138,743
    
    
    
    11,717
    
    
    
    134,178Equity in earnings of investees, net of tax
    
    
    17,193
    
    
    
    12,478
    
    
    
    1,567NET INCOME
    
    $
    155,936
    
    
    $
    24,195
    
    
    $
    135,745
 The accompanying notes are an integral part of the consolidated financial statements.
 74




---



##### 



CRUM & FORSTER HOLDINGS CORP.
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 (Dollars in thousands)
 Years Ended December 31,2005
    
    
    2004
    
    
    2003COMMON STOCKBalance, beginning and end of year
    
    $
    
    
    
    $
    
    
    
    $
    ADDITIONAL PAID-IN CAPITALBalance, beginning of year
    
    
    740,993
    
    
    
    740,993
    
    
    
    748,735Capital contribution
    
    
    
    
    
    
    
    
    
    
    1,076Adjustment for acquisition of affiliates net assets
    
    
    
    
    
    
    
    
    
    
    (8,818
    )Balance, end of year
    
    
    740,993
    
    
    
    740,993
    
    
    
    740,993ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF TAXBalance, beginning of year
    
    
    55,875
    
    
    
    43,496
    
    
    
    26,663Unrealized investment gains and losses, net of
transfers to realized investment gains and losses
    
    
    (3,326
    )
    
    
    7,344
    
    
    
    11,608Foreign currency translation
    
    
    894
    
    
    
    5,035
    
    
    
    5,225Balance, end of year
    
    
    53,443
    
    
    
    55,875
    
    
    
    43,496RETAINED EARNINGSBalance, beginning of year
    
    
    84,321
    
    
    
    121,626
    
    
    
    203,766Net income
    
    
    155,936
    
    
    
    24,195
    
    
    
    135,745Dividends to shareholder
    
    
    (73,500
    )
    
    
    (61,500
    )
    
    
    (217,885
    )Balance, end of year
    
    
    166,757
    
    
    
    84,321
    
    
    
    121,626TOTAL SHAREHOLDERS EQUITY
    
    $
    961,193
    
    
    $
    881,189
    
    
    $
    906,115
 The accompanying notes are an integral part of the consolidated financial statements.
 75




---



##### 



CRUM & FORSTER HOLDINGS CORP.
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 (Dollars in thousands)
 Years Ended December 31,2005
    
    
    2004
    
    
    2003NET INCOME
    
    $
    155,936
    
    
    $
    24,195
    
    
    $
    135,745Change in components of other comprehensive income for the year, before tax:Unrealized investment gains and losses
    
    
    (5,116
    )
    
    
    11,297
    
    
    
    17,630Foreign currency translation
    
    
    1,375
    
    
    
    7,746
    
    
    
    8,039Other comprehensive income for the year, before tax
    
    
    (3,741
    )
    
    
    19,043
    
    
    
    25,669Deferred income tax benefit (expense) for the year:Deferred income tax benefit (expense) from unrealized investment gains
and losses
    
    
    1,790
    
    
    
    (3,953
    )
    
    
    (6,022
    )Deferred income tax expense from foreign currency translation
    
    
    (481
    )
    
    
    (2,711
    )
    
    
    (2,814
    )Total deferred income tax benefit (expense) for the year
    
    
    1,309
    
    
    
    (6,664
    )
    
    
    (8,836
    )Other comprehensive income for the year, net of tax
    
    
    (2,432
    )
    
    
    12,379
    
    
    
    16,833COMPREHENSIVE INCOME
    
    $
    153,504
    
    
    $
    36,574
    
    
    $
    152,578
 The
 accompanying notes are an integral part of the consolidated
financial statements.
 76




---



##### 



CRUM & FORSTER HOLDINGS CORP.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 Years Ended December 31,2005
    
    
    2004
    
    
    2003OPERATING ACTIVITIESNet income
    
    $
    155,936
    
    
    $
    24,195
    
    
    $
    135,745Adjustments to reconcile net income to net cash from operating activities:Net accretion of discount on fixed income securities
    
    
    (4,554
    )
    
    
    (5,143
    )
    
    
    (21,189
    )Realized investment gains
    
    
    (84,187
    )
    
    
    (79,537
    )
    
    
    (268,160
    )Earnings of equity method investees
    
    
    (40,702
    )
    
    
    (20,229
    )
    
    
    (11,796
    )Depreciation and amortization
    
    
    3,460
    
    
    
    4,649
    
    
    
    6,412Deferred income tax expense (benefit)
    
    
    60
    
    
    
    (17,244
    )
    
    
    24,888Other non-cash net income adjustments
    
    
    20,161
    
    
    
    26,274
    
    
    
    6,541Changes in:Premiums receivable
    
    
    16,525
    
    
    
    11,698
    
    
    
    (58,448
    )Reinsurance recoverable
    
    
    (362,654
    )
    
    
    (53,618
    )
    
    
    446,164Prepaid reinsurance premiums
    
    
    3,834
    
    
    
    4,209
    
    
    
    19,237Deferred policy acquisition costs
    
    
    4,199
    
    
    
    (3,362
    )
    
    
    (17,613
    )Other assets
    
    
    10,339
    
    
    
    42,074
    
    
    
    7,049Unpaid losses and loss adjustment expenses
    
    
    302,097
    
    
    
    177,016
    
    
    
    (55,638
    )Unearned premiums
    
    
    (29,041
    )
    
    
    6,382
    
    
    
    102,715Accounts payable and other liabilities
    
    
    29,992
    
    
    
    7,956
    
    
    
    71,562Net cash from operating activities
    
    
    25,465
    
    
    
    125,320
    
    
    
    387,469INVESTING ACTIVITIESPurchases of fixed income securities
    
    
    (1,556,386
    )
    
    
    (3,084,984
    )
    
    
    (3,742,272
    )Proceeds from sales of fixed income securities
    
    
    1,515,176
    
    
    
    1,412,630
    
    
    
    5,244,052Proceeds from maturities of fixed income securities
    
    
    
    
    
    
    190,209
    
    
    
    38,800Purchases of equity securities
    
    
    (240,099
    )
    
    
    (266,904
    )
    
    
    (192,814
    )Proceeds from sales of equity securities
    
    
    211,902
    
    
    
    166,298
    
    
    
    101,428Purchases of other invested assets
    
    
    (87,017
    )
    
    
    (141,410
    )
    
    
    (27,615
    )Proceeds from sales of other invested assets
    
    
    34,890
    
    
    
    12,232
    
    
    
    64,528Proceeds from short-sale obligations
    
    
    100,013
    
    
    
    199,746
    
    
    
    Cash pledged for short-sale obligations
    
    
    (113,604
    )
    
    
    (200,748
    )
    
    
    Purchases of fixed assets
    
    
    (604
    )
    
    
    (2,588
    )
    
    
    (1,240
    )Net cash from investing activities
    
    
    (135,729
    )
    
    
    (1,715,519
    )
    
    
    1,484,867FINANCING ACTIVITIESDividends to shareholder
    
    
    (73,500
    )
    
    
    (61,500
    )
    
    
    (217,885
    )Deferred financing costs
    
    
    
    
    
    
    (974
    )
    
    
    (10,635
    )Issuance of long-term debt
    
    
    
    
    
    
    
    
    
    
    290,955Interest escrow deposit
    
    
    
    
    
    
    
    
    
    
    (63,115
    )Capital contributions
    
    
    
    
    
    
    
    
    
    
    1,076Net cash from financing activities
    
    
    (73,500
    )
    
    
    (62,474
    )
    
    
    396Net change in cash and cash equivalents
    
    
    (183,764
    )
    
    
    (1,652,673
    )
    
    
    1,872,732Cash and cash equivalents, beginning of year
    
    
    429,205
    
    
    
    2,081,878
    
    
    
    209,146Cash and cash equivalents, end of year
    
    $
    245,441
    
    
    $
    429,205
    
    
    $
    2,081,878SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest
    
    $
    31,125
    
    
    $
    31,404
    
    
    $
    16,427Cash paid to parent for income taxes
    
    $
    77,808
    
    
    $
    47,970
    
    
    $
    27,506
 The accompanying notes are an integral part of the consolidated financial statements
 77




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
 1.
    
    Organization and Basis of Presentation
     2.
    
    Summary of Significant Accounting Policies
  Investments
    78




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
 Realized investment gains or losses are determined on the basis of average cost. Investment
income is recorded as earned.Cash and cash equivalentsThe Company considers highly liquid investments purchased with a maturity of three months or
less to be cash equivalents.Deferred policy acquisition costsCertain costs that vary with and are primarily related to the acquisition of new and renewal
policies, consisting of commissions and premium taxes incurred, are deferred and amortized over
the period in which the related premiums are earned. Deferred policy acquisition costs are
limited to their estimated realizable value, which considers anticipated losses and loss
adjustment expenses on the related policies and estimated remaining costs of servicing the
contracts. Realizability is determined without considering investment income.GoodwillGoodwill is subject to an assessment of impairment on an annual basis or more frequently under
certain circumstances. The assessment of impairment involves a two-step process whereby an
initial assessment for potential impairment is performed followed by a measurement of the
impairment, if any. Impairments are charged to operations in the period in which the impairment
occurs. The Companys annual impairment test in 2005 and 2004 resulted in a conclusion that no
goodwill impairment has occurred. Goodwill in the amount of $7,311 is included in other assets
on the consolidated balance sheets at December 31, 2005 and 2004.Unpaid losses and loss adjustment expensesThe estimated liability for unpaid losses and loss adjustment expenses (LAE) includes
estimates of the ultimate settlement value of reported claims, incurred but not reported claims,
future expenses to be incurred in the settlement of claims and claim recoveries. These
estimates are determined based on the Companys loss experience, as well as consideration of
industry experience and current trends and conditions. The estimated liability for unpaid
losses and LAE is an estimate and future loss payments could differ significantly from initial
estimates. The methods of determining such estimates and the resulting estimated liability are
regularly reviewed and updated. Changes in the estimated liability for unpaid losses and LAE
are reflected in income in the period in which such changes are required.The Company maintains a reserve for uncollectible loss deductibles. This reserve includes both
specific allowances for probable uncollectible amounts and a non-specific reserve determined
principally on the basis of past collection experience. At December 31, 2005 and 2004, the
amount of the reserve was $8,680 and $5,738, respectively.ReinsuranceThe Company reinsures, in the ordinary course of business, certain risks with other insurance
and reinsurance companies (reinsurers). These arrangements provide the means for greater
diversification of business and serve to limit the net loss potential of unusually severe or
frequent losses. The ceding of insurance does not discharge the original insurer from its
primary liability to its policyholder; however, the reinsurer that accepts the risk assumes an
obligation to the original insurer (ceding insurer). The ceding insurer retains a contingent
liability with respect to reinsurance ceded to the extent that any reinsuring company might not
be able, or willing, to meet its obligations. Reinsurance recoverable includes the balances due
from reinsurers for paid and unpaid losses and LAE that are expected to be recovered from
reinsurers. Reserves for uncollectible reinsurance are determined based upon regular reviews of
the financial condition of reinsurers and assessments of other available information. Prepaid
reinsurance premiums represent the portion of premiums ceded to reinsurers applicable to the
unexpired terms of the ceded contracts.For retroactive reinsurance contracts, the excess of reinsurance recoverable due from reinsurers
pursuant to the contracts over premiums paid for such reinsurance coverage is deferred and
amortized as a reduction of losses and LAE over the expected period of recovery using the
interest method.
 79




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
 Funds held under reinsurance contractsPremiums withheld from reinsurers pursuant to the related reinsurance contracts are included in
funds held under reinsurance contracts on the consolidated balance sheets. Interest accrues on
these funds in accordance with the contract terms and is included as a reduction of investment
income on the consolidated statements of income. Interest on funds held under reinsurance
contracts is charged at rates between 7% and 7.5% per annum as specified in the related
reinsurance contract.Income taxesThe Company participates in tax sharing agreements that provide for the inclusion of the Company
in the consolidated federal income tax returns of Fairfax Inc. (the Fairfax Group), as well as
the consolidated or combined state income or franchise tax returns of Fairfax Inc. Subject to
the tax sharing agreements discussed in this paragraph, every member of the Fairfax Group is
severally liable for the federal income tax liabilities of the Fairfax Group and may be liable
under similar rules for state income or franchise taxes of the entire group. Under the tax
sharing agreements, Crum & Forster and its insurance subsidiaries make payments to Fairfax Inc.
equal to the amounts of federal income taxes that each company would pay, subject to some
adjustments, if they each had filed their own separate federal income tax returns, and their shares of any state income or franchise taxes. Although the Company does not currently offset
its losses (including amounts arising from interest expense on its senior notes) or losses of
one of its subsidiaries against income of another in computing the federal income tax payments
to Fairfax Inc. under the tax sharing agreements, during 2005, Fairfax Inc. and the Company
reaffirmed, in writing, the Companys interpretation of the agreements that all tax elections,
including the election to file a consolidated tax return, are available to the Company.
Furthermore, Fairfax Inc. confirmed its commitment to stand in the place of the tax authority
for purposes of determining federal income tax payments, including the requirement to honor all
valid tax elections.Deferred income taxes are provided for temporary differences between the financial statement and
tax basis of assets and liabilities. Such differences relate principally to deferred income on
retroactive reinsurance, unpaid losses and LAE, net operating loss carryforwards, unearned
premiums, employee benefit plans, unrealized net appreciation of investments and deferred policy
acquisition costs. A valuation allowance against deferred tax assets is recorded if it is more
likely than not that all, or some portion of, the benefits related to deferred tax assets will
not be realized.PremiumsInsurance premiums are earned ratably over the terms of the related policies after deductions
for premiums ceded to reinsurers. Unearned premium reserves are established for the unexpired
portion of policy premiums. Premiums are accrued for retrospectively rated policies and on
policies subject to audit based on estimates throughout the contract or policy term. The
reserve for uncollectible premiums includes both specific allowances for probable uncollectible
amounts and a non-specific reserve determined principally on the basis of past collection
experience. At December 31, 2005 and 2004, the reserve for uncollectible premiums
was $24,437 and $23,859, respectively.Foreign currencyFinancial statements of foreign investees accounted for using the equity method are translated
into U.S. dollars in accordance with Statement of Financial Accounting Standards (SFAS) No.
52, Foreign Currency Translation. Under SFAS No. 52, investments in entities accounted for
under the equity method are translated into U.S. dollars at the rate of exchange in effect at
the date of the transaction and related equity earnings are translated at the average rate in
effect during the period. At each balance sheet date, the carrying amounts are translated into
U.S. dollars at the rate in effect at the balance sheet date and any translation gains or losses
are recorded in other comprehensive income.DerivativesThe Company periodically purchases certain derivative contracts for its investment portfolio
consistent with its overall investment strategy. Such derivative contracts are accounted for in
accordance with SFAS No. 133, Derivatives and Hedging, as amended, which requires derivatives
to be recorded at fair value on the balance sheet. Changes in fair value are recognized in the
statement of income.
 80




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
 Accumulated other comprehensive income, net of tax
  3.
    
    Investments
  Available-for-sale securities
  At December 31, 2005Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueFixed income securities:United States government and government
agencies and authorities
    
    $
    1,757,178
    
    
    $
    494
    
    
    $
    61,610
    
    
    $
    1,696,062States, municipalities and political subdivisions
    
    
    7,144
    
    
    
    8
    
    
    
    9
    
    
    
    7,143Public utilities
    
    
    5,080
    
    
    
    733
    
    
    
    
    
    
    
    5,813Other corporate fixed income securities
    
    
    304,041
    
    
    
    2,560
    
    
    
    24,501
    
    
    
    282,100Total fixed income securities
    
    
    2,073,443
    
    
    
    3,795
    
    
    
    86,120
    
    
    
    1,991,118Equity securities:Common stocks
    
    
    493,942
    
    
    
    114,821
    
    
    
    22,754
    
    
    
    586,009Preferred stocks
    
    
    10,000
    
    
    
    11
    
    
    
    76
    
    
    
    9,935Total equity securities
    
    
    503,942
    
    
    
    114,832
    
    
    
    22,830
    
    
    
    595,944Total available-for-sale securities
    
    $
    2,577,385
    
    
    $
    118,627
    
    
    $
    108,950
    
    
    $
    2,587,062
 At December 31, 2004Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueFixed income securities:United States government and government agencies
and authorities
    
    $
    1,754,181
    
    
    $
    7,128
    
    
    $
    43,712
    
    
    $
    1,717,597States, municipalities and political subdivisions
    
    
    6,448
    
    
    
    187
    
    
    
    
    
    
    
    6,635Public utilities
    
    
    5,072
    
    
    
    749
    
    
    
    
    
    
    
    5,821Other corporate fixed income securities
    
    
    296,545
    
    
    
    17,596
    
    
    
    4,348
    
    
    
    309,793Total fixed income securities
    
    
    2,062,246
    
    
    
    25,660
    
    
    
    48,060
    
    
    
    2,039,846Equity securities:Common stocks
    
    
    378,598
    
    
    
    96,013
    
    
    
    19,458
    
    
    
    455,153Preferred stocks
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total equity securities
    
    
    378,598
    
    
    
    96,013
    
    
    
    19,458
    
    
    
    455,153Total available-for-sale securities
    
    $
    2,440,844
    
    
    $
    121,673
    
    
    $
    67,518
    
    
    $
    2,494,999
 81




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
  At December 31, 2005AmortizedCost
    
    
    Fair ValueDue in one year or less
    
    $
    63,183
    
    
    $
    62,869Due after one year through five years
    
    
    72,821
    
    
    
    70,480Due after five years through ten years
    
    
    65,525
    
    
    
    50,935Due after ten years through twenty years
    
    
    383,285
    
    
    
    380,353Due after twenty years
    
    
    1,488,629
    
    
    
    1,426,481Total fixed income securities
    
    $
    2,073,443
    
    
    $
    1,991,118
   At December 31, 2005Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Loss
    
    
    Fair Value
    
    
    Loss
    
    
    Fair Value
    
    
    LossFixed income securities:United States government and
government agencies and
authorities
    
    $
    1,499,226
    
    
    $
    61,217
    
    
    $
    11,261
    
    
    $
    393
    
    
    $
    1,510,487
    
    
    $
    61,610States, municipalities and
political subdivisions
    
    
    1,337
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    1,337
    
    
    
    9Other corporate fixed income
securities
    
    
    47,492
    
    
    
    14,218
    
    
    
    207,462
    
    
    
    10,283
    
    
    
    254,954
    
    
    
    24,501Total fixed income securities
    
    
    1,548,055
    
    
    
    75,444
    
    
    
    218,723
    
    
    
    10,676
    
    
    
    1,766,778
    
    
    
    86,120Equity securities:Common stocks
    
    
    189,543
    
    
    
    22,719
    
    
    
    115
    
    
    
    35
    
    
    
    189,658
    
    
    
    22,754Preferred stocks
    
    
    8,174
    
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    8,174
    
    
    
    76Total equity securities
    
    
    197,717
    
    
    
    22,795
    
    
    
    115
    
    
    
    35
    
    
    
    197,832
    
    
    
    22,830Total
    
    $
    1,745,772
    
    
    $
    98,239
    
    
    $
    218,838
    
    
    $
    10,711
    
    
    $
    1,964,610
    
    
    $
    108,950
  82




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
        At December 31, 2004Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Fair Value
    
    
    LossFixed income securities:United States government and
government agencies and
authorities
    
    $
    1,552,411
    
    
    $
    43,120
    
    
    $
    11,155
    
    
    $
    592
    
    
    $
    1,563,566
    
    
    $
    43,712Other corporate fixed income
securities
    
    
    204,800
    
    
    
    4,348
    
    
    
    
    
    
    
    
    
    
    
    204,800
    
    
    
    4,348Total fixed income securities
    
    
    1,757,211
    
    
    
    47,468
    
    
    
    11,155
    
    
    
    592
    
    
    
    1,768,366
    
    
    
    48,060Equity securities:Common stocks
    
    
    87,449
    
    
    
    19,458
    
    
    
    
    
    
    
    
    
    
    
    87,449
    
    
    
    19,458Total equity securities
    
    
    87,449
    
    
    
    19,458
    
    
    
    
    
    
    
    
    
    
    
    87,449
    
    
    
    19,458Total
    
    $
    1,844,660
    
    
    $
    66,926
    
    
    $
    11,155
    
    
    $
    592
    
    
    $
    1,855,815
    
    
    $
    67,518
 83




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
     At December 31, 2005Fair Value
    
    
    Unrealized LossDue in one year or less
    
    $
    59,475
    
    
    $
    324Due after one through five years
    
    
    49,397
    
    
    
    3,594Due after five through ten years
    
    
    50,839
    
    
    
    14,612Due after ten years through twenty years
    
    
    196,088
    
    
    
    3,410Due after twenty years
    
    
    1,410,979
    
    
    
    64,180Total fixed income securities in a loss position
    
    $
    1,766,778
    
    
    $
    86,120
 Investment income
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Interest on fixed income securities
    
    $
    112,788
    
    
    $
    103,162
    
    
    $
    65,774Dividends on equity securities
    
    
    20,679
    
    
    
    11,541
    
    
    
    6,971Income on other invested assets
    
    
    19,681
    
    
    
    5,507
    
    
    
    12,241Interest on cash and cash equivalents1
    
    
    18,335
    
    
    
    6,207
    
    
    
    11,552Gross investment income
    
    
    171,483
    
    
    
    126,417
    
    
    
    96,538Interest on funds held under reinsurance contracts
    
    
    (19,904
    )
    
    
    (30,501
    )
    
    
    (18,458
    )Investment expenses
    
    
    (20,456
    )
    
    
    (10,815
    )
    
    
    (8,178
    )Investment income
    
    $
    131,123
    
    
    $
    85,101
    
    
    $
    69,902
 
 1
    
    Includes interest of $8,923 and $343 in 2005 and 2004, respectively, on cash
collateral pledged for short-sale obligations. 84




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
  Investment gains and losses
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Fixed income securities:Gains
    
    $
    87,318
    
    
    $
    57,454
    
    
    $
    217,293Losses
    
    
    (786
    )
    
    
    (150
    )
    
    
    (18,626
    )Net
    
    
    86,532
    
    
    
    57,304
    
    
    
    198,667Equity securities:Gains
    
    
    51,490
    
    
    
    40,833
    
    
    
    56,052Losses
    
    
    (7,039
    )
    
    
    (684
    )
    
    
    Net
    
    
    44,451
    
    
    
    40,149
    
    
    
    56,052Other invested assets:Gains
    
    
    3,153
    
    
    
    3,484
    
    
    
    16,273Losses
    
    
    (49,949
    )
    
    
    (21,400
    )
    
    
    (2,832
    )Net
    
    
    (46,796
    )
    
    
    (17,916
    )
    
    
    13,441Total realized investment gains and losses:Gains
    
    
    141,961
    
    
    
    101,771
    
    
    
    289,618Losses
    
    
    (57,774
    )
    
    
    (22,234
    )
    
    
    (21,458
    )Net
    
    $
    84,187
    
    
    $
    79,537
    
    
    $
    268,160
   85




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Fixed income securities
    
    $
    (59,925
    )
    
    $
    (38,679
    )
    
    $
    (13,721
    )Equity securities
    
    
    15,447
    
    
    
    38,688
    
    
    
    29,552Other invested assets
    
    
    39,362
    
    
    
    11,288
    
    
    
    1,799Change in unrealized
investment gains and losses,
net of transfers to realized
investment gains and losses,
before income taxes
    
    
    (5,116
    )
    
    
    11,297
    
    
    
    17,630Deferred income tax expense
    
    
    1,790
    
    
    
    (3,953
    )
    
    
    (6,022
    )Change in unrealized
investment gains and losses,
net of transfers to realized
investment gains and losses,
reflected in shareholders
equity
    
    $
    (3,326
    )
    
    $
    7,344
    
    
    $
    11,608
 Investments in affiliates
  Ownership Percentage atAt December 31, 2005
    
    
    At December 31, 2004
    
    
    December 31, 2005Cost
    
    
    Carrying Value
    
    
    Cost
    
    
    Carrying Value
    
    
    Crum & Forster
    
    
    FairfaxZenith National Insurance Corp.
    
    $
    62,733
    
    
    $
    154,994
    
    
    $
    90,733
    
    
    $
    161,504
    
    
    
    9.0
    %
    
    
    10.3
    %Northbridge Financial Corporation
    
    $
    75,055
    
    
    $
    136,385
    
    
    $
    75,055
    
    
    $
    106,641
    
    
    
    15.2
    %
    
    
    59.2
    %HWIC Asia Fund
    
    $
    76,210
    
    
    $
    135,297
    
    
    $
    76,210
    
    
    $
    92,953
    
    
    
    16.5
    %
    
    
    98.5
    %Odyssey Re Holdings Corp 
common shares
    
    $
    17,824
    
    
    $
    18,664
    
    
    $
    17,824
    
    
    $
    17,925
    
    
    
    1.2
    %
    
    
    80.1
    %Advent Capital (Holdings) PLC
    
    $
    19,295
    
    
    $
    13,347
    
    
    $
    10,973
    
    
    $
    14,036
    
    
    
    11.4
    %
    
    
    46.8
    %Odyssey Re Holdings Corp 
preferred shares
    
    $
    10,000
    
    
    $
    9,935
    
    
    $
    
    
    
    $
    
    
    
    
    N/A
    
    
    
    N/ATRG Holding Corporation
    
    $
    5,025
    
    
    $
    8,339
    
    
    $
    5,025
    
    
    $
    7,517
    
    
    
    1.4
    %
    
    
    100.0
    %Dalton Greater China Fund
    
    $
    7,985
    
    
    $
    7,985
    
    
    $
    
    
    
    $
    
    
    
    
    21.5
    %
    
    
    53.8
    %MFXchange Holdings Inc.
    
    $
    3,725
    
    
    $
    2,341
    
    
    $
    3,725
    
    
    $
    2,347
    
    
    
    9.3
    %
    
    
    100.0
    %Pacific Century Fund I
    
    $
    
    
    
    $
    
    
    
    $
    10,000
    
    
    $
    10,000
    
    
    
    
    %
    
    
    
    %
   86




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
       Equity method investees
   At December 31,2005
    
    
    2004Cash and investments
    
    $
    638,831
    
    
    $
    503,323Total assets
    
    $
    962,537
    
    
    $
    798,717Total liabilities
    
    $
    612,740
    
    
    $
    518,088Shareholders equity or partners capital1
    
    $
    349,797
    
    
    $
    280,629
 
 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 goodwill arising on the acquisition of the equity investees. 87




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
  Years Ended December, 312005
    
    
    2004
    
    
    2003Total revenues
    
    $
    228,960
    
    
    $
    184,662
    
    
    $
    48,998Total expenses
    
    $
    170,143
    
    
    $
    150,134
    
    
    $
    33,471Net income
    
    $
    45,477
    
    
    $
    24,402
    
    
    $
    13,640
  Northbridge Financial Corporation
  HWIC Asia Fund
  Short-sale obligations and derivatives
    Regulatory and other deposits
  88




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
   4.
    
    Unpaid Losses and Loss Adjustment Expenses
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Gross unpaid losses and LAE, beginning of year
    
    $
    3,370,936
    
    
    $
    3,193,920
    
    
    $
    3,249,558Less ceded unpaid losses and LAE
    
    
    1,360,996
    
    
    
    1,321,004
    
    
    
    1,756,404Net unpaid losses and LAE, beginning of year
    
    
    2,009,940
    
    
    
    1,872,916
    
    
    
    1,493,154Losses and LAE incurred related to:Current year
    
    
    684,069
    
    
    
    692,258
    
    
    
    534,338Prior years
    
    
    (68,564
    )
    
    
    69,254
    
    
    
    117,996Total losses and LAE incurred
    
    
    615,505
    
    
    
    761,512
    
    
    
    652,334Losses and LAE paid related to:Current year
    
    
    154,381
    
    
    
    164,057
    
    
    
    112,097Prior years1
    
    
    480,798
    
    
    
    460,431
    
    
    
    160,475Total losses and LAE paid
    
    
    635,179
    
    
    
    624,488
    
    
    
    272,572Net unpaid losses and LAE, end of year
    
    
    1,990,266
    
    
    
    2,009,940
    
    
    
    1,872,916Add ceded unpaid losses and LAE
    
    
    1,682,768
    
    
    
    1,360,996
    
    
    
    1,321,004Gross unpaid losses and LAE, end of year
    
    $
    3,673,034
    
    
    $
    3,370,936
    
    
    $
    3,193,920
 
 1
    
    Losses and LAE paid in 2003 for prior accident years are reduced by
$273,977 in proceeds from the commutation of two reinsurance contracts in December
2003.  2005
    
    
    2004Ceded unpaid losses and LAE in the table above
    
    $
    1,682,768
    
    
    $
    1,360,996Reconciling items:Reinsurance receivable on paid losses and LAE
    
    
    69,734
    
    
    
    51,446Unamortized retroactive reinsurance recoverable
    
    
    379,123
    
    
    
    413,880Loss sensitive cession1
    
    
    (21,510
    )
    
    
    (21,510
    )Reinsurance recoverable on the consolidated balance sheets
    
    $
    2,110,115
    
    
    $
    1,804,812
 
 1
    
    Equals additional premiums due on retrospectively rated insurance
policies that inure to the benefit of the reinsurer.  89




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
      5. Asbestos and Environmental Losses and Loss Adjustment Expenses
  Years Ended December 31,2005
    
    
    2004
    
    
    2003AsbestosGross unpaid losses and allocated LAE (ALAE), beginning of year
    
    $
    522,685
    
    
    $
    495,195
    
    
    $
    370,875Less ceded unpaid losses and ALAE
    
    
    113,891
    
    
    
    128,787
    
    
    
    106,073Net unpaid losses and ALAE, beginning of year
    
    
    408,794
    
    
    
    366,408
    
    
    
    264,802Net losses and ALAE incurred
    
    
    31,550
    
    
    
    90,515
    
    
    
    149,835Net paid losses and ALAE
    
    
    63,563
    
    
    
    48,129
    
    
    
    48,229Net unpaid losses and ALAE, end of year
    
    
    376,781
    
    
    
    408,794
    
    
    
    366,408Add ceded unpaid losses and ALAE
    
    
    92,418
    
    
    
    113,891
    
    
    
    128,787Gross unpaid losses and ALAE, end of year
    
    $
    469,199
    
    
    $
    522,685
    
    
    $
    495,195
 90




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
 Years Ended December 31,2005
    
    
    2004
    
    
    2003EnvironmentalGross unpaid losses and ALAE, beginning of year
    
    $
    123,353
    
    
    $
    130,511
    
    
    $
    163,165Less ceded unpaid losses and ALAE
    
    
    38,190
    
    
    
    31,675
    
    
    
    57,373Net unpaid losses and ALAE, beginning of year
    
    
    85,163
    
    
    
    98,836
    
    
    
    105,792Net losses and ALAE incurred
    
    
    6,635
    
    
    
    10,007
    
    
    
    1,975Net paid losses and ALAE
    
    
    17,555
    
    
    
    23,680
    
    
    
    8,931Net unpaid losses and ALAE, end of year
    
    
    74,243
    
    
    
    85,163
    
    
    
    98,836Add ceded unpaid losses and ALAE
    
    
    37,293
    
    
    
    38,190
    
    
    
    31,675Gross unpaid losses and ALAE, end of year
    
    $
    111,536
    
    
    $
    123,353
    
    
    $
    130,511
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Other LatentGross unpaid losses and ALAE, beginning of year
    
    $
    35,357
    
    
    $
    40,818
    
    
    $
    43,518Less ceded unpaid losses and ALAE
    
    
    13,333
    
    
    
    14,117
    
    
    
    15,187Net unpaid losses and ALAE, beginning of year
    
    
    22,024
    
    
    
    26,701
    
    
    
    28,331Net losses and ALAE incurred
    
    
    6,461
    
    
    
    20
    
    
    
    1,830Net paid losses and ALAE
    
    
    4,441
    
    
    
    4,697
    
    
    
    3,460Net unpaid losses and ALAE, end of year
    
    
    24,044
    
    
    
    22,024
    
    
    
    26,701Add ceded unpaid losses and ALAE
    
    
    12,794
    
    
    
    13,333
    
    
    
    14,117Gross unpaid losses and ALAE, end of year
    
    $
    36,838
    
    
    $
    35,357
    
    
    $
    40,818
 6. Reinsurance
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Premiums written:Direct
    
    $
    1,078,670
    
    
    $
    1,124,881
    
    
    $
    1,085,277Assumed from other companies, pools, or associations
    
    
    19,086
    
    
    
    14,080
    
    
    
    18,934Ceded to other companies, pools, or associations
    
    
    (228,790
    )
    
    
    (220,661
    )
    
    
    (213,388
    )Net premiums written
    
    $
    868,966
    
    
    $
    918,300
    
    
    $
    890,823Premiums earned:Direct
    
    $
    1,108,690
    
    
    $
    1,118,526
    
    
    $
    982,485Assumed from other companies, pools, or associations
    
    
    18,106
    
    
    
    14,053
    
    
    
    19,077Ceded to other companies, pools, or associations
    
    
    (232,623
    )
    
    
    (224,870
    )
    
    
    (232,690
    )Premiums earned
    
    $
    894,173
    
    
    $
    907,709
    
    
    $
    768,872
 91




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
  At December 31,2005
    
    
    2004Reinsurance recoverable on unpaid losses and LAE
    
    $
    2,040,381
    
    
    $
    1,753,366Reinsurance receivable on paid losses and LAE
    
    
    69,734
    
    
    
    51,446Total reinsurance recoverable
    
    $
    2,110,115
    
    
    $
    1,804,812
    Corporate aggregate reinsurance
  92




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
    Years Ended December 31,2005
    
    
    2004
    
    
    2003Premiums earned
    
    $
    
    
    
    $
    (7,595
    )
    
    $
    (138
    )Investment income
    
    
    (19,904
    )
    
    
    (30,501
    )
    
    
    (18,458
    )Losses and LAE
    
    
    (8,058
    )
    
    
    (28,318
    )
    
    
    (14,178
    )Income before income taxes
    
    $
    (11,846
    )
    
    $
    (9,778
    )
    
    $
    (4,418
    )
  2000 accident year
prospective aggregate stop
loss
contract
    
    $
    53,1451998 prospective aggregate
stop loss
contract
    
    
    367,500
    11998 aggregate stop loss
contract amendment
    
    
    19,2482001 retroactive adverse
development contract for $400,000
    
    
    377,0202001 retroactive adverse
development contract for $100,000
    
    
    32,540Total
    
    $
    849,453
 
 1
    
    Includes $389,010 which has been recognized as a reduction of losses and LAE less
$21,510 for additional premiums due on retrospectively rated insurance policies that
inure to the benefit of the reinsurer. Total amounts recognized as a reduction of losses
and LAE include the $389,010 above, $53,145 on the 2000 accident year prospective aggregate
stop loss contract and $49,686 of amortization of deferred gains on the retroactive
reinsurance contracts.
 Prospective corporate aggregate reinsurance
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Ceded losses and LAE
    
    $
    
    
    
    $
    9,994
    
    
    $
    1,130Less: ceded premiums written and earned
    
    
    
    
    
    
    7,595
    
    
    
    138Less: funds held interest charged to investment income
    
    
    4,509
    
    
    
    9,190
    
    
    
    7,452Income before income taxes
    
    $
    (4,509
    )
    
    $
    (6,791
    )
    
    $
    (6,460
    )
  93




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
    Retroactive corporate aggregate reinsurance
  Years Ended December 31,2005
    
    
    2004
    
    
    2003(Decrease) increase in reinsurance recoverable due from reinsurers
    
    $
    (26,699
    )
    
    $
    117,677
    
    
    $
    98,583Less: related premiums paid
    
    
    4,105
    
    
    
    56,517
    
    
    
    37,792Income deferred during the year
    
    
    (30,804
    )
    
    
    61,160
    
    
    
    60,791Amortization of deferred income
    
    
    (8,058
    )
    
    
    (18,324
    )
    
    
    (13,048
    )(Decrease) increase in deferred income
    
    
    (38,862
    )
    
    
    42,836
    
    
    
    47,743Deferred income on retroactive reinsurancebeginning of year
    
    
    223,360
    
    
    
    180,524
    
    
    
    132,781Deferred income on retroactive reinsuranceend of year
    
    $
    184,498
    
    
    $
    223,360
    
    
    $
    180,524Funds held interest charged during the year
    
    $
    15,395
    
    
    $
    21,311
    
    
    $
    11,006
   94




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
     7. Long-Term Debt
     95




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
  8. Income Taxes
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Current
    
    $
    74,518
    
    
    $
    28,479
    
    
    $
    46,570Deferred
    
    
    (9,198
    )
    
    
    (23,963
    )
    
    
    24,044Total income tax expense
    
    $
    65,320
    
    
    $
    4,516
    
    
    $
    70,614
   At December 31,2005
    
    
    2004Deferred tax assets:Deferred income on retroactive reinsurance
    
    $
    64,575
    
    
    $
    78,177Unpaid losses and LAE
    
    
    54,285
    
    
    
    63,590Net operating loss carryforwards
    
    
    44,950
    
    
    
    32,677Unearned premiums
    
    
    35,581
    
    
    
    34,764Employee benefit plans
    
    
    11,576
    
    
    
    10,724Other
    
    
    24,351
    
    
    
    22,130Deferred tax assets
    
    
    235,318
    
    
    
    242,062Deferred tax liabilities:Unrealized net appreciation of investments and currency translation
    
    
    28,807
    
    
    
    30,117Deferred policy acquisition costs
    
    
    24,783
    
    
    
    26,252Other
    
    
    6,521
    
    
    
    11,736Deferred tax liabilities
    
    
    60,111
    
    
    
    68,105Total net deferred tax assets
    
    $
    175,207
    
    
    $
    173,957
  96




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
  Years Ended December 31,2005
    
    
    2004
    
    
    2003% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofPre-tax
    
    
    
    
    
    
    Pre-tax
    
    
    
    
    
    
    Pre-taxAmount
    
    
    Income
    
    
    Amount
    
    
    Income
    
    
    Amount
    
    
    IncomeIncome taxes computed on
pre-tax operating income
    
    $
    71,422
    
    
    
    35.0
    %
    
    $
    5,682
    
    
    
    35.0
    %
    
    $
    71,677
    
    
    
    35.0
    %(Decrease)
increase in income taxes
resulting from:Dividends received
deduction and tax-exempt
income
    
    
    (3,903
    )
    
    
    (1.9
    )
    
    
    (1,861
    )
    
    
    (11.5
    )
    
    
    (1,331
    )
    
    
    (0.6
    )Prior year audit adjustment
    
    
    (1,653
    )
    
    
    (0.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other, net
    
    
    (546
    )
    
    
    (0.3
    )
    
    
    695
    
    
    
    4.3
    
    
    
    268
    
    
    
    0.1Total income tax expense
    
    $
    65,320
    
    
    
    32.0
    %
    
    $
    4,516
    
    
    
    27.8
    %
    
    $
    70,614
    
    
    
    34.5
    %
  9. Related Party Transactions
 Reinsurance
  At December 31,2005
    
    
    2004
    
    
    2003Statements of income:Net premiums written
    
    $
    (52,895
    )
    
    $
    (50,229
    )
    
    $
    (46,973
    )Premiums earned
    
    $
    (54,575
    )
    
    $
    (49,571
    )
    
    $
    (43,675
    )Losses and LAE
    
    $
    (130,596
    )
    
    $
    (50,235
    )
    
    $
    (46,528
    )Balance sheets:Premiums receivable
    
    $
    136
    
    
    $
    594Reinsurance recoverable from affiliates
    
    $
    304,033
    
    
    $
    195,799Prepaid reinsurance premiums
    
    $
    11,199
    
    
    $
    13,396Unpaid losses and LAE
    
    $
    6,858
    
    
    $
    9,505Unearned premiums
    
    $
    64
    
    
    $
    579Accounts payable and other liabilities
    
    $
    18,855
    
    
    $
    10,451
 97




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
       98




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
     Investment agreements and affiliated transactions
    Other agreements
    99




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
        10. Employee Benefits
   100




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
  At December 31,2005
    
    
    2004Changes in benefit obligation:Benefit obligation at beginning of year
    
    $
    13,599
    
    
    $
    14,752Service cost
    
    
    
    
    
    
    1Interest cost
    
    
    645
    
    
    
    839Plan participants contributions
    
    
    1,321
    
    
    
    1,137Actuarial gain
    
    
    (1,533
    )
    
    
    (785
    )Benefits paid
    
    
    (2,634
    )
    
    
    (2,345
    )Benefit obligation at end of year
    
    $
    11,398
    
    
    $
    13,599Change in fair value of assets:Fair value of assets at beginning of year
    
    $
    
    
    
    $
    Employer contributions
    
    
    1,313
    
    
    
    1,208Plan participants contributions
    
    
    1,321
    
    
    
    1,137Benefits paid
    
    
    (2,634
    )
    
    
    (2,345
    )Fair value of assets at end of year
    
    $
    
    
    
    $
    Accrued benefit cost:Funded status
    
    $
    (11,398
    )
    
    $
    (13,599
    )Unrecognized net actuarial gain
    
    
    (4,456
    )
    
    
    (3,251
    )Unrecognized transition obligation
    
    
    5,086
    
    
    
    5,903Accrued benefit cost
    
    $
    (10,768
    )
    
    $
    (10,947
    )
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Service cost
    
    $
    
    
    
    $
    1
    
    
    $
    2Interest cost
    
    
    645
    
    
    
    839
    
    
    
    989Amortization of transition obligation
    
    
    817
    
    
    
    817
    
    
    
    817Recognized net actuarial gain
    
    
    (327
    )
    
    
    (146
    )
    
    
    (64
    )Net periodic benefit cost
    
    $
    1,135
    
    
    $
    1,511
    
    
    $
    1,744
  101




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
   Including
    
    ExcludingMedicare
    
    MedicareSubsidy
    
    Subsidy2006
    
    $
    1,078
    
    $
    1,4362007
    
    $
    1,079
    
    $
    1,4542008
    
    $
    1,057
    
    $
    1,4412009
    
    $
    1,007
    
    $
    1,3962010
    
    $
    1,017
    
    $
    1,3132011 - 2015
    
    $
    4,896
    
    $
    5,186
   11.
    
    Commitments and Contingencies
  2006
    
    $
    12,1772007
    
    
    8,4792008
    
    
    7,2102009
    
    
    5,9602010
    
    
    5,0672011 and thereafter
    
    
    40,911Total minimum annual rentals
    
    $
    79,804
   102




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
        12.
    
    Dividend Restrictions, Statutory Information and Capitalization
  103




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
  Years Ended December 31,2005
    
    2004
    
    2003Net income
    
    $
    151,924
    
    $
    74,556
    
    $
    223,385Policyholders surplus
    
    $
    1,313,988
    
    $
    1,206,547
    
    $
    1,107,435
   13.
    
    Segment Reporting
  Years Ended December 31,2005
    
    2004
    
    2003Workers compensation
    
    $
    285,775
    
    $
    282,388
    
    $
    210,951General liability
    
    
    203,703
    
    
    198,993
    
    
    165,199Commercial automobile
    
    
    186,601
    
    
    174,416
    
    
    132,317Property
    
    
    151,578
    
    
    187,177
    
    
    209,042Commercial multi-peril
    
    
    45,653
    
    
    42,833
    
    
    33,015Surety
    
    
    20,863
    
    
    21,902
    
    
    18,348Total premiums earned
    
    $
    894,173
    
    $
    907,709
    
    $
    768,872
 104




---



##### 



Years Ended December 31,2005
    
    
    2004
    
    
    2003Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioWorkers
compensation
    
    $
    203,561
    
    
    
    71.2
    %
    
    $
    225,733
    
    
    
    79.9
    %
    
    $
    166,009
    
    
    
    78.7
    %General liability
    
    
    142,137
    
    
    
    69.8
    %
    
    
    208,181
    
    
    
    104.6
    %
    
    
    241,928
    
    
    
    146.4
    %Commercial automobile
    
    
    94,099
    
    
    
    50.4
    %
    
    
    112,331
    
    
    
    64.4
    %
    
    
    89,094
    
    
    
    67.3
    %Property
    
    
    126,726
    
    
    
    83.6
    %
    
    
    154,868
    
    
    
    82.7
    %
    
    
    125,909
    
    
    
    60.2
    %Commercial multi-peril
    
    
    7,072
    
    
    
    15.5
    %
    
    
    43,910
    
    
    
    102.5
    %
    
    
    25,064
    
    
    
    75.9
    %Surety
    
    
    41,910
    
    
    
    200.9
    %
    
    
    16,489
    
    
    
    75.3
    %
    
    
    4,330
    
    
    
    23.6
    %Total losses and LAE
    
    $
    615,505
    
    
    
    68.8
    %
    
    $
    761,512
    
    
    
    83.9
    %
    
    $
    652,334
    
    
    
    84.8
    %
  14.
    
    Quarterly Financial Data
  Three Months Ended(Unaudited)December 31,
    
    September 30,
    
    June 30,
    
    March 31,2005
    
    2004
    
    2005
    
    2004
    
    2005
    
    2004
    
    2005
    
    2004Premiums earned
    
    $
    228,741
    
    $
    242,370
    
    $
    191,898
    
    $
    212,037
    
    $
    241,980
    
    $
    225,763
    
    $
    231,554
    
    $
    227,539Investment income1
    
    $
    28,124
    
    $
    59,202
    
    $
    59,547
    
    $
    24,720
    
    $
    98,363
    
    $
    38,796
    
    $
    55,727
    
    $
    61,117Losses and LAE
    
    $
    129,703
    
    $
    206,979
    
    $
    169,632
    
    $
    233,132
    
    $
    162,537
    
    $
    159,264
    
    $
    153,633
    
    $
    162,137Net income (loss)
    
    $
    43,081
    
    $
    14,727
    
    $
    6,101
    
    $
    (44,777
    )
    $
    67,199
    
    $
    19,091
    
    $
    39,555
    
    $
    35,154Combined ratio
    
    
    82.5%
    
    
    111.5%
    
    
    122.3%
    
    
    139.8%
    
    
    94.7%
    
    
    98.5%
    
    
    93.9%
    
    
    99.0%
 
 1
    
    Investment income includes realized investment gains and losses and pre-tax
equity in earnings of investees.  15.
    
    Subsequent Event
   105




---



##### 



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
   ITEM 9B. OTHER INFORMATION
  PART III
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 Directors and Executive Officers
  Name
    
    Age
    
    PositionV. Prem Watsa
    
    
    55
    
    
    ChairmanNikolas Antonopoulos
    
    
    52
    
    
    President and Chief Executive OfficerMary Jane Robertson
    
    
    52
    
    
    Executive Vice President, Chief
Financial Officer and TreasurerFrank B. Bennett1
    
    
    49
    
    
    DirectorAnthony F. Griffiths1
    
    
    75
    
    
    DirectorRobbert Hartog1,2
    
    
    87
    
    
    Director
 
 1
    
    Audit committee member.2
    
    Chairman of the audit committee. 106




---



##### 



V. Prem Watsa
 Nikolas Antonopoulos
 Mary Jane Robertson
 Frank B. Bennett
 Anthony F. Griffiths
 Robbert Hartog
 Key Employees of the Operating Companies
 Joseph F. Braunstein
 Audit Committee and Audit Committee Financial Expert
   107




---



##### 



Compensation Committee
  Compensation of Directors
  Code of Ethics
  ITEM 11. EXECUTIVE COMPENSATION
 Executive Compensation
  Long-Term CompensationAnnual Compensation
    
    AwardsLongOther
    
    
    
    
    
    TermAnnual
    
    Restricted
    
    Incentive
    
    All OtherFiscal
    
    
    
    
    
    
    
    
    
    Compen-
    
    Stock
    
    Plan
    
    Compen-Name and Principal Position
    
    Year
    
    Salary
    
    Bonus1
    
    sation2
    
    Awards3
    
    Payouts
    
    sation4V. Prem Watsa5
    
    
    2005
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Chairman and former Chief
    
    
    2004
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Executive Officer
    
    
    2003
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Nikolas Antonopoulos6
    
    
    2005
    
    
    $
    700,000
    
    
    $
    1,300,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    854,500President
and Chief
    
    
    2004
    
    
    $
    607,692
    
    
    $
    1,000,000
    
    
    $
    
    
    
    $
    353,646
    
    
    $
    
    
    
    $
    845,730Executive Officer
    
    
    2003
    
    
    $
    500,000
    
    
    $
    700,000
    
    
    $
    55,207
    
    
    $
    
    
    
    $
    
    
    
    $
    839,500Mary Jane Robertson6
    
    
    2005
    
    
    $
    500,000
    
    
    $
    800,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    842,500Executive
Vice President,
    
    
    2004
    
    
    $
    500,000
    
    
    $
    750,000
    
    
    $
    83,139
    
    
    $
    161,557
    
    
    $
    
    
    
    $
    842,500Chief Financial Officer and Treasurer
    
    
    2003
    
    
    $
    500,000
    
    
    $
    700,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    839,500Joseph F. Braunstein6
    
    
    2005
    
    
    $
    500,000
    
    
    $
    800,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    295,933President
of Crum &
    
    
    2004
    
    
    $
    375,000
    
    
    $
    550,000
    
    
    $
    
    
    
    $
    161,557
    
    
    $
    
    
    
    $
    295,483Forsters insurance subsidiaries
 
 1
    
    The amounts shown were earned in the year indicated and paid in the
following year.2
    
    In accordance with SEC rules, perquisite disclosure is only included
where all perquisites exceed the lesser of $50,000 or 10% of a named executive officers
salary and bonus. Includes payments by the Company with respect to the lease of an
automobile for Mr. Antonopoulos in 2003 and Ms. Robertson in 2004 in amounts of $23,989 and
$23,256, respectively, and payments to compensate Mr. Antonopoulos in 2003 and Ms.
Robertson in 2004 for higher property tax expense incurred with respect to home relocation
and tax preparation expense in amounts of $31,218 and $59,883,
respectively.3
    
    Mr. Antonopoulos, Ms. Robertson and Mr. Braunstein hold 5,000, 4,017 and 1,217
shares of restricted subordinate voting shares of Fairfax, respectively, granted under the
Fairfax Financial 1999 Restricted Share Plan, with values of approximately $716,800,
$575,877 and $174,469, respectively, at December 30, 2005, based upon the closing price of
the subordinate voting shares of Fairfax on the New York Stock
Exchange. 108




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##### 



4
    
    With
respect to 2005, includes a company matching and basic contribution under the Individual Retirement
Plan of United States Fire Insurance Company (IRP) for Mr. Antonopoulos, Ms.
Robertson and Mr. Braunstein in the total amount of $12,600 each
and a company matching and basic contribution under the Supplemental Individual Retirement Plan of
United States Fire Insurance Company (SIRP) for
Mr. Antonopoulos and Ms. Robertson in the total
amounts of $29,400 and $17,400, respectively.  With respect to 2004,
includes a company matching and basic contribution under the IRP for each of
Mr. Antonopoulos, Ms. Robertson and Mr. Braunstein in
the total amounts of $8,307, $8,307, and
$12,150, respectively, and
a company matching and basic contribution
under the SIRP for Mr. Antonopoulos and Ms. Robertson in
the total amounts of $24,923 and
$21,693, respectively. With respect to 2003,
includes a company matching and basic contribution under the IRP for Mr.
Antonopoulos and Ms. Robertson in the total amount of $7,800 each and a
company matching and basic contribution under the SIRP for
Mr. Antonopoulos and Ms. Robertson in the total amount of $19,200
each. In 2003, the Company awarded a bonus to each of Mr. Antonopoulos and Ms.
Robertson in the amount of $3,250,000 and Mr. Braunstein in the amount of $1,000,000 in
recognition of each individuals service and contribution to the Company in 1999 through 2002.
The bonus vested or will vest 25% on each of July 1, 2003, July 1, 2004, July 1, 2005 and July
1, 2006 and was or will be payable, as applicable, within 10 days of vesting. Mr. Braunstein
was awarded an additional $99,999 in 2004, which amount vested or will vest, as applicable,
equally on July 1, 2004, July 1, 2005 and July 1, 2006. If an individual terminates employment
prior to any vesting date, he or she will forfeit payment of the unvested portion of the bonus.
Notwithstanding the foregoing, the unvested portion of the bonus will immediately vest and
become payable if such individual (i) dies, (ii) becomes disabled, (iii) retires, (iv) is
terminated without cause, (v) resigns for good reason or (vi) upon a change of control.5
    
    V. Prem Watsa is compensated by Fairfax without reimbursement by the
Company. During 2005, 2004 and 2003, Mr. Watsa was paid total annual compensation of
Cdn$600,000 in each year and total other compensation of Cdn$16,500,
Cdn$15,500 and
Cdn$14,500, respectively, by Fairfax. Since 2000, Mr. Watsa has agreed that his aggregate
compensation from Fairfax and Hamblin Watsa Investment Counsel Ltd. will consist solely of
an annual salary of Cdn$600,000 (and standard benefits provided to Fairfaxs executives
generally), with no bonus or other profit participation and no participation in any equity
plans (other than the payroll purchase plan).6
    
    Includes amounts paid by Crum & Forster Holdings Corp. and subsidiaries. Long-Term Incentive Plan
   Long-Term
Incentive Plan  Awards in Last Fiscal Year
 Number ofShares, Units or
    
    Performance or Other Period UntilName
    
    Other Rights
    
    Maturation or PayoutV. Prem Watsa
    
    
    
    
    
    
    Nikolas Antonopoulos
    
    
    3,030
    
    
    
    3/1/2005  1/1/2009Mary Jane Robertson
    
    
    1,520
    
    
    
    3/1/2005  1/1/2009Joseph F. Braunstein
    
    
    1,520
    
    
    
    3/1/2005  1/1/2009
 109




---



##### 



Employment Agreements; Change of Control Arrangements
 Nikolas Antonopoulos
 st
 Mary Jane Robertson
 st
 Joseph F. Braunstein
 st
 110




---



##### 



Compensation Committee Interlocks and Insider Participation
  ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
    
    all those known by the Company to be beneficial owners of more than 5% of the
outstanding shares of Crum & Forsters common stock; and
    
    all executive officers and directors as a group.
  Shares of Common StockName of Person or Group
    
    Shares Owned
    
    Percent of TotalFairfax Inc.1
    
    
    100
    
    
    
    100
    %Officers, directors as a group
    
    
    
    
    
    
    
 
 1
    
    Fairfax Inc. is a subsidiary of Fairfax. The principal office address
of Fairfax Inc. is 300 First Stamford Place, Stamford Connecticut 06902. The Sixty Two
Investment Company Limited (Sixty Two), a company controlled by V. Prem Watsa, the
Companys Chairman, owns subordinate and multiple voting shares representing 47.6% of
the total votes attached to all classes of shares of Fairfax. Mr. Watsa himself
beneficially owns and controls additional subordinate voting shares, which, together
with the shares owned by Sixty Two, represent 48.4% of the total votes attached to all
classes of Fairfaxs shares. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 Investment Agreements
  Investments in and Transactions With Affiliates
   111




---



##### 



Reinsurance Agreements
  
    
    Under an agreement effective June 1, 2005, which provides reinsurance for the Companys
management protection business, including directors and officers liability, employment
practices liability, fiduciary liability and fidelity, nSpire has a 100% participation in
the Companys excess of loss reinsurance. This contract provides coverage of up to $8
million in excess of the Companys retention of $2 million for new and renewal primary
policies. nSpire also has a 100% participation in the Companys variable quota share
reinsurance treaty for excess policies under which nSpire assumes 60% of policy limits up
to $5 million and 80% of policies from $5 million to $10 million. The ceding commission is
27.5% under both treaties;
    
    Under agreements effective May 1, 2003, which provide reinsurance for the Companys
surety bond business, nSpire has a 100% participation in the Companys excess of loss
reinsurance (subject to a 10% co-participation by the Company), which provides up to $7.5
million of coverage in excess of the retention of $7.5 million per principal and has a 100%
participation on the per bond variable quota share reinsurance. The ceding commission rate
under the variable quota share is 42.5% and the percent ceded varies from 20% to 77.5%,
depending on the bond penalty;
    
    In a number of reinsurance treaties that provide coverage for Senecas directors and
officers liability, employment practices, boiler and machinery, environmental and
technology errors and omissions business for various periods from 1997 to the present,
Odyssey participates in varying percentages up to 36% of the total coverage; and
    
    Effective January 1, 2001, the Company entered into a reinsurance agreement with Lombard
under which the Company has agreed to reinsure 100% of the surety business of Lombard
underwritten by the Company. The agreement provides for a 10% ceding commission. This is
a continuous-term agreement that can be cancelled by either party with 60 days prior
written notice.
 Claims Services and Management Agreements
  Information Technology Services Agreement
  112




---



##### 



Fairfax Insurance Coverage
  Tax Sharing Agreements
   Borrowing from Fairfax
   Other Agreement
  113




---



##### 



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Years Ended December 31,2005
    
    
    2004Audit fees
    
    $
    878,197
    
    
    $
    769,680Audit-related fees
    
    
    669,011
    
    
    
    601,471Tax fees
    
    
    
    
    
    
    2,000All other fees
    
    
    1,690
    
    
    
    1,590Total fees billed by principal accountants
    
    $
    1,548,898
    
    
    $
    1,374,741
 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




---



##### 



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, 2003.10.1
    
    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 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 blank10.12
    
    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.
 115




---



##### 



ExhibitNumber
    
    Exhibit
    
    Location*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
    
    Addendum to the Tax Sharing
Agreement between Fairfax Inc.
and Crum & Forster Holding Inc.,
effective as of January 1, 2005.
    
    Exhibit 10.17 to the Form
10-Q of the Company for the
period ended September 30,
2005, filed on October 28,
2005.10.18
    
    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, 2003.10.21
    
    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
    
    Intentionally left blank10.26
    
    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
    
    Intentionally left blank10.28
    
    Intentionally left blank10.29
    
    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
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
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
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
year ended December 31,
2004, filed on March 7,
2005.
 116




---



##### 



ExhibitNumber
    
    Exhibit
    
    Location*10.36
    
    Addendum to the Tax Sharing Agreement
between Fairfax Inc. and the Company
effective as of January 1, 2005
    
    Exhibit 10.36 to the Form 10-Q of the
Company for the period ended
September 30, 2005, filed on October
28, 2005.10.37
    
    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, 2005.10.38
    
    Amendment Number 1 to the Investment
Agreement among Hamblin Watsa, Fairfax and
Seneca 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, 2005.12.1
    
    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, 2005.21.1
    
    List of the Companys Subsidiaries
    
    Filed herewith.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. 117




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##### 



SIGNATURES
  CRUM & FORSTER HOLDINGS CORP.
(Registrant)Date: March 21, 2006
    By:
    /s/ Nikolas AntonopoulosNikolas AntonopoulosPresident and Chief Executive Officer Date: March 21, 2006
    By:
    /s/ Mary Jane RobertsonMary Jane RobertsonExecutive Vice President, Chief Financial
Officer and Treasurer POWER OF ATTORNEY
   Signature
    
    Title
    
    DateBy: /s/
    
    V. Prem Watsa
    
    Chairman of the Board
    
    March 21, 2006V. Prem WatsaBy: /s/
    
    Nikolas Antonopoulos
    
    President and Chief Executive Officer
    
    March 21, 2006Nikolas AntonopoulosBy: /s/
    
    Mary Jane Robertson
    
    Executive Vice President, Chief
Financial Officer and Treasurer
    
    March 21, 2006Mary Jane RobertsonBy: /s/
    
    Frank B. Bennett
    
    Director
    
    March 21, 2006Frank B. BennettBy: /s/
    
    Anthony F. Griffiths
    
    Director
    
    March 21, 2006Anthony F. GriffithsBy:
    
    
    
    DirectorRobbert Hartog
 118




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##### 



INDEX TO FINANCIAL STATEMENTS AND RELATED FINANCIAL STATEMENT SCHEDULES
 PageNumberConsolidated Financial Statements
    
    
    71Financial Statement SchedulesReport of Independent Registered Public Accounting Firm on Financial Statement Schedules
    
    
    120Schedule ISummary of Investments Other Than Investments in Related Parties
    
    
    121Schedule IICondensed Balance Sheets of Crum & Forster Holdings Corp. at December 31, 2005 and 2004 (Parent Company Only)
    
    
    122Schedule IICondensed Statements of Income of Crum & Forster Holdings Corp. for the Years Ended December 31, 2005, 2004 and 2003 (Parent Company Only)
    
    
    123Schedule IICondensed Statements of Cash Flows of Crum & Forster Holdings Corp. for the Years Ended December 31, 2005, 2004 and 2003 (Parent Company Only)
    
    
    124Schedule IIISupplementary Insurance Information
    
    
    *Schedule IVReinsurance
    
    
    *Schedule VValuation and Qualifying Accounts
    
    
    125Schedule VISupplementary Insurance Information
    
    
    *
 
  119




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##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULES
    
 120




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##### 



SCHEDULE I
 CRUM & FORSTER HOLDINGS CORP.
SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
(Dollars in thousands)
 At December 31, 2005Amount atwhichCost or
    
    
    
    
    
    
    Shown inAmortized
    
    
    Estimated
    
    
    the BalanceCost
    
    
    Fair Value
    
    
    Sheet1Fixed income securities:United States government and government agencies and authorities
    
    $
    1,757,178
    
    
    $
    1,696,062
    
    
    $
    1,696,062States, municipalities and political subdivisions
    
    
    7,144
    
    
    
    7,143
    
    
    
    7,143Public utilities
    
    
    5,080
    
    
    
    5,813
    
    
    
    5,813Other corporate fixed income securities
    
    
    304,041
    
    
    
    282,100
    
    
    
    282,100Total fixed income securities
    
    
    2,073,443
    
    
    
    1,991,118
    
    
    
    1,991,118Equity securities:Common stocks
    
    
    411,915
    
    
    
    417,668
    
    
    
    586,009Preferred stocks
    
    
    
    
    
    
    
    
    
    
    9,935Total equity securities
    
    
    411,915
    
    
    
    417,668
    
    
    
    595,944Other invested assets
    
    
    117,720
    
    
    xxx,xxx
    

    
    391,132Total investments
    
    $
    2,603,078
    
    
    $x,xxx,xxx


    $
    2,978,194
 121




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##### 



SCHEDULE II
 CRUM & FORSTER HOLDINGS CORP. (PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF CRUM & FORSTER HOLDINGS CORP.
BALANCE SHEETS
(Dollars in thousands)
 At December 31,2005
    
    
    2004ASSETSCash and cash equivalents
    
    $
    1,705
    
    
    $
    752Restricted cash and cash equivalents
    
    
    
    
    
    
    16,212Investments in consolidated subsidiaries
    
    
    1,205,800
    
    
    
    1,121,219Other invested assets
    
    
    6,358
    
    
    
    8,395Deferred income taxes
    
    
    34,029
    
    
    
    20,849Accrued investment income
    
    
    4
    
    
    
    19Other assets
    
    
    8,626
    
    
    
    9,787Total assets
    
    $
    1,256,522
    
    
    $
    1,177,233LIABILITIESAccounts payable and other liabilities
    
    $
    2,859
    
    
    $
    4,193Accounts payable to affiliates
    
    
    
    
    
    
    10Long-term debt
    
    
    292,470
    
    
    
    291,841Total liabilities
    
    
    295,329
    
    
    
    296,044SHAREHOLDER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, net of tax
    
    
    53,443
    
    
    
    55,875Retained earnings
    
    
    166,757
    
    
    
    84,321Total shareholders equity
    
    
    961,193
    
    
    
    881,189Total liabilities and shareholders equity
    
    $
    1,256,522
    
    
    $
    1,177,233
 122




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##### 



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 31,2005
    
    
    2004
    
    
    2003REVENUESEquity in earnings of subsidiaries
    
    $
    180,463
    
    
    $
    46,594
    
    
    $
    152,015Investment income
    
    
    1,096
    
    
    
    478
    
    
    
    545Total revenues
    
    
    181,559
    
    
    
    47,072
    
    
    
    152,560EXPENSESInterest expense
    
    
    32,915
    
    
    
    33,159
    
    
    
    18,677Realized investment losses (gains)
    
    
    4,254
    
    
    
    (2,395
    )
    
    
    Other expense, net
    
    
    1,661
    
    
    
    4,175
    
    
    
    6,898Total expenses
    
    
    38,830
    
    
    
    34,939
    
    
    
    25,575Income before income taxes
    
    
    142,729
    
    
    
    12,133
    
    
    
    126,985Income tax benefit
    
    
    (13,207
    )
    
    
    (12,062
    )
    
    
    (8,760
    )NET INCOME
    
    $
    155,936
    
    
    $
    24,195
    
    
    $
    135,745
 123




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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 31,2005
    
    
    2004
    
    
    2003OPERATING ACTIVITIESNet income
    
    $
    155,936
    
    
    $
    24,195
    
    
    $
    135,745Adjustments to reconcile net income to net cash from operating activities:Earnings of equity method investees
    
    
    (180,463
    )
    
    
    (46,594
    )
    
    
    (152,015
    )Dividends received from subsidiary
    
    
    93,400
    
    
    
    77,000
    
    
    
    Realized investment losses (gains)
    
    
    4,254
    
    
    
    (2,395
    )
    
    
    Net accretion of discount on fixed income securities
    
    
    2
    
    
    
    274
    
    
    
    328Amortization
    
    
    1,790
    
    
    
    1,763
    
    
    
    945Deferred income tax benefit
    
    
    (13,207
    )
    
    
    (12,062
    )
    
    
    (8,760
    )Changes in:Other assets
    
    
    16,300
    
    
    
    31,081
    
    
    
    18,175Accounts payable and other liabilities
    
    
    (1,332
    )
    
    
    546
    
    
    
    3,567Accounts payable to affiliates
    
    
    (10
    )
    
    
    (4,945
    )
    
    
    1,977Net cash from operating activities
    
    
    76,670
    
    
    
    68,863
    
    
    
    (38
    )INVESTING ACTIVITIESPurchases of other invested assets
    
    
    (2,217
    )
    
    
    (6,000
    )
    
    
    FINANCING ACTIVITIESDividends paid to shareholder
    
    
    (73,500
    )
    
    
    (61,500
    )
    
    
    (217,885
    )Deferred financing costs
    
    
    
    
    
    
    (974
    )
    
    
    (10,635
    )Issuance of long-term debt
    
    
    
    
    
    
    
    
    
    
    290,955Interest escrow deposit
    
    
    
    
    
    
    
    
    
    
    (63,115
    )Capital contributions
    
    
    
    
    
    
    
    
    
    
    1,076Net cash from financing activities
    
    
    (73,500
    )
    
    
    (62,474
    )
    
    
    396Net change in cash and cash equivalents
    
    
    953
    
    
    
    389
    
    
    
    358Cash and cash equivalents, beginning of year
    
    
    752
    
    
    
    363
    
    
    
    5Cash and cash equivalents, end of year
    
    $
    1,705
    
    
    $
    752
    
    
    $
    363SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest
    
    $
    31,125
    
    
    $
    31,404
    
    
    $
    16,427
 124




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##### 



SCHEDULE V
 CRUM & FORSTER HOLDINGS CORP.
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
 Balance at
    
    Charges to
    
    Charged to
    
    
    
    
    
    Balance atBeginning
    
    Costs and
    
    Other
    
    
    
    
    
    End ofYear
    
    Description
    
    of Year
    
    Expenses
    
    Accounts
    
    Deductions
    
    Year2005
    
    Reserve for uncollectible premiums
    
    $
    23,859
    
    
    
    
    
    
    
    1,509
    1
    
    
    (931
    )2
    
    $
    24,4372004
    
    Reserve for uncollectible premiums
    
    $
    22,359
    
    
    
    
    
    
    
    1,787
    1
    
    
    (287
    )2
    
    $
    23,8592003
    
    Reserve for uncollectible premiums
    
    $
    22,095
    
    
    
    
    
    
    
    1,611
    1
    
    
    (1,347
    )2
    
    $
    22,3592005
    
    Reserve for uncollectible reinsurance
    
    $
    40,930
    
    
    
    7,206
    3
    
    
    
    
    
    
    (13,695
    )4
    
    $
    34,4412004
    
    Reserve for uncollectible reinsurance
    
    $
    39,882
    
    
    
    5,000
    3
    
    
    
    
    
    
    (3,952
    )4
    
    $
    40,9302003
    
    Reserve for uncollectible reinsurance
    
    $
    35,542
    
    
    
    5,281
    3
    
    
    
    
    
    
    (941
    )4
    
    $
    39,8822005
    
    Reserve for uncollectible loss deductibles
    
    $
    5,738
    
    
    
    3,000
    5
    
    
    
    
    
    
    (58
    )6
    
    $
    8,6802004
    
    Reserve for uncollectible loss deductibles
    
    $
    10,960
    
    
    
    (4,604
    )5
    
    
    
    
    
    
    (618
    )6
    
    $
    5,7382003
    
    Reserve for uncollectible loss deductibles
    
    $
    7,208
    
    
    
    4,008
    5
    
    
    
    
    
    
    (256
    )6
    
    $
    10,960
 
 1
    
    Primarily represents increases to the reserve for uncollectible premiums
charged against premiums earned.2
    
    Primarily represents uncollectible premiums written off to the reserve.3
    
    Primarily represents increases to the reserve for uncollectible reinsurance charged
to losses and LAE.4
    
    Primarily represents uncollectible reinsurance recoverable balances written off to
the reserve.5
    
    Primarily represents increases (decreases) to the reserve for uncollectible loss
deductibles that are charged to losses and LAE.6
    
    Primarily represents uncollectible loss deductibles written off to the reserve. 125