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Crum & Forster Holdings Corp – ‘S-4/A’ on 3/12/04

On:  Friday, 3/12/04, at 8:52pm ET   ·   As of:  3/15/04   ·   Accession #:  909567-4-363   ·   File #:  333-107722

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 3/15/04  Crum & Forster Holdings Corp      S-4/A       3/12/04    3:2.7M                                   Bowne - Bot/FA

Document/Exhibit                   Description                      Pages   Size 

 1: S-4/A       Pre-Effective Amendment to Registration of          HTML   1.88M 
                          Securities Issued in a                                 
                          Business-Combination Transaction                       
 3: S-4/A       PDF Courtesy Copy -- t12215a4sv4zaxpdfy              PDF    576K 
 2: EX-23.2     Consent of Experts or Counsel                          1      5K 

Registration No. 333-107722

SECURITIES AND EXCHANGE COMMISSION

AMENDMENT NO. 4

Crum & Forster Holdings Corp.

305 Madison Avenue

Mary Jane Robertson

(Name, address, including zip code, and telephone number,

Copies to:

Christopher J. Cummings, Esq.

Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.      o.

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.      o                               

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.      o                               

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

PART I

INFORMATION REQUIRED TO BE DELIVERED TO NOTEHOLDERS

SUBJECT TO COMPLETION, DATED MARCH 12, 2004

Crum & Forster Holdings Corp.

Offer to exchange all outstanding 10 3/8% Senior Notes

The Old Notes:

$300,000,000 aggregate principal amount of 10 3/8% Senior Notes due 2013 were originally issued and sold by Crum & Forster Funding Corp. on June 5, 2003 in a transaction that was exempt from registration under the Securities Act of 1933, as amended, and resold to qualified institutional buyers in compliance with Rule 144A. The notes were assumed by us on June 30, 2003.

The New Notes:

The terms of the new notes are identical to the terms of the old notes except that the new notes are registered under the Securities Act of 1933, will not contain restrictions on transfer or provisions relating to additional interest, will bear a different CUSIP number from the old notes and will not entitle their holders to registration rights.

See “Risk factors” beginning on page 10 for a discussion of certain risks that you should consider in connection with an investment in the notes.

Exchange Offer:

Our offer to exchange old notes for new notes will be open until 5:00 p.m., New York City time, on April 14, 2004, unless we extend the offer.

New notes will be issued in exchange for an equal principal amount of outstanding old notes accepted in the exchange offer. The exchange offer is not conditioned upon any minimum principal amount of old notes being tendered for exchange. However, the obligation to accept old notes for exchange pursuant to the exchange offer is subject to certain customary conditions set forth herein. See “Exchange offer— Conditions.”

No public market currently exists for the notes.

This prospectus, as it may be amended or supplemented from time to time, may be used by broker-dealers in connection with resales of new notes received in exchange for old notes, where such old notes were acquired by such broker-dealer as a result of market making or other trading activities.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the notes or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is                     , 2004.

Table of contents

We have not authorized anyone to give you any information or to make any representations about the transactions we discuss in this prospectus other than those contained in this prospectus. If you are given any information or representations about these matters that is not discussed, you must not rely on that information. This prospectus is not an offer to sell or a solicitation of an offer to buy securities anywhere or to anyone where or to whom we are not permitted to offer or sell securities under applicable laws.

You must comply with all applicable laws and regulations in force in any jurisdiction in which you purchase, offer or sell the new notes and must obtain any consent, approval or permission required by you for the purchase, offer or sale by you of the new notes under the laws and regulations in force in any jurisdiction to which you are subject or in which you make any purchases, offers or sales, and we will not have any responsibility for your failure to do so.

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Prospectus summary

This summary highlights the information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information that may be important to you. For a more complete understanding, we encourage you to read this entire prospectus and the documents to which this prospectus refers. In this prospectus, “Crum & Forster,” “Company,” “we,” “us” and “our” refer to Crum & Forster Holdings Corp. and its subsidiaries. You should read the following summary together with the more detailed information and consolidated financial statements and the notes to those statements included elsewhere in this prospectus. Unless otherwise indicated, financial information included in this prospectus is presented on a historical basis.

Crum & Forster Holdings Corp.

Overview

We are a national commercial property and casualty insurance company with a focused underwriting strategy, targeting specialty classes of business and overlooked market opportunities. We distinguish ourselves by applying individual risk selection to business that requires greater underwriting expertise. Our objective is to expand opportunistically into classes of business or market segments that are consistent with our underwriting expertise and have the potential to generate an underwriting profit. We write a broad range of commercial coverages, including property, workers’ compensation, general liability, commercial automobile and surety. We operate through our home office and a regional branch network, allowing us to centrally control our underwriting process, respond to local market conditions and build close relationships with our producers and insureds.

We conduct our business through eight wholly-owned operating subsidiaries as illustrated on the following page. Our sole stockholder is Fairfax Inc., a Wyoming corporation that is wholly owned by Fairfax Financial Holdings Limited, a financial services holding company incorporated under the federal laws of Canada. Fairfax Financial Holdings Limited’s subordinate voting shares trade on the New York Stock Exchange and the Toronto Stock Exchange under the symbol “FFH.”

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Corporate Structure

Crum & Forster Holdings Corp. was established as a Delaware corporation on March 6, 2002 for the sole purpose of holding the capital stock of Crum & Forster Holding Inc. Each of our significant subsidiaries is depicted below.

Our principal executive offices are located at 305 Madison Avenue, Morristown, NJ 07962 and our telephone number at that address is (973) 490-6600. Our web site is located at http://www.cfins.com. The information on our web site is not part of this prospectus.

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Summary of terms of the exchange offer

On June 5, 2003, Crum & Forster Funding Corp. issued $300,000,000 principal amount of 10 3/8% Senior Notes due 2013. Crum & Forster Funding Corp. is a Delaware corporation formed by Policy, Inc., an unaffiliated third party, as a special purpose entity solely for the purpose of issuing the 10 3/8% Senior Notes due 2013. On June 30, 2003, we assumed all of Crum & Forster Funding Corp.’s outstanding obligations under such notes and the indenture governing these notes. In this prospectus, we refer to (1) the notes sold in that original offering as the old notes, (2) the notes offered in this prospectus in exchange for the old notes as the new notes and (3) the old notes and the new notes together as the notes.

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Summary financial data

The table shown below presents our summary financial data for the three years ended December 31, 2003. The financial information was prepared in accordance with accounting principles generally accepted in the United States (GAAP). The GAAP statement of operations data for the years ended December 31, 2001, 2002 and 2003 and the GAAP balance sheet data as of December 31, 2002 and 2003 were derived from Crum & Forster Holdings Corp.’s consolidated financial statements, which have been audited by PricewaterhouseCoopers LLP, independent accountants. The consolidated balance sheets at December 31, 2002 and 2003 and the related consolidated statements of operations, of stockholder’s equity, of comprehensive income and of cash flows for each of the three years in the period ended December 31, 2003 and accompanying notes appear in this prospectus beginning at page F-1. The combined statutory data has been derived from annual statutory financial statements filed with the domiciliary states of our insurance operating subsidiaries and prepared in accordance with statutory accounting principles, which differ from GAAP.

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The summary financial data presented below should be read in conjunction with “Management’s discussion and analysis of financial condition and results of operations” and the consolidated financial statements and accompanying notes included elsewhere in this prospectus.

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Risk factors

In deciding whether to exchange the old notes for new notes, you should carefully consider the risks described below, which could cause our operating results and financial condition to be materially adversely affected, as well as other information and data included in this prospectus. This section does not describe all risks applicable to us, our industry or our business, and it is intended only as a summary of certain material factors.

Risks relating to our business

If there are any negative changes in the financial strength ratings of our operating subsidiaries, especially from A.M. Best, it will be very difficult for us to write quality new or renewal business, secure adequate reinsurance on acceptable terms and retain our key management and employees.

Third party rating agencies periodically assess and rate the claims-paying ability of insurers based upon criteria established by the rating agencies. Our operating subsidiaries (other than Seneca) are part of an insurance group that has an “A-” rating (the fourth highest of fifteen ratings) with a negative outlook from A.M. Best Company, Inc. (A.M. Best), a rating agency and publisher for the insurance industry, and a “BBB” financial strength rating (the fourth highest of nine ratings categories) from Standard & Poor’s Insurance Rating Services, also a rating agency for the insurance industry. Seneca has an “A-” rating, with a negative outlook, from A.M. Best. Financial strength ratings are used by insurance consumers and insurance intermediaries as an important means of assessing the financial strength and quality of insurers, and we currently have the lowest rating necessary to compete in our targeted markets. We may not maintain our financial strength ratings from the rating agencies. A downgrade or withdrawal of any rating could severely limit or prevent us from writing any new insurance policies. A.M. Best has advised us that although it is encouraged by the improved underlying trends exhibited in our recent underwriting performance, the rating outlook is negative, and contingent upon management’s ability to ultimately achieve our near-term calendar year combined ratio targets and improved financial flexibility of our ultimate parent, Fairfax. According to A.M. Best, a negative outlook indicates that A.M. Best believes that the rated insurer is experiencing unfavorable financial and/or market trends, relative to its rating level and, if such trends continue, it has a good possibility of having its rating lowered. Our ratings by these rating agencies are based on a variety of factors, many of which are outside of our control, including the financial condition of Fairfax and its other subsidiaries and affiliates, the financial condition or actions of parties from which we have obtained reinsurance and factors relating to the sectors in which we or they conduct business and the statutory surplus of our insurance subsidiaries, which is adversely affected by underwriting losses and dividends paid by them to us.

The claims-paying ability ratings assigned by rating agencies to insurance companies represent independent opinions of an insurer’s financial strength and its ability to meet ongoing obligations to policyholders, and are not directed toward the protection of investors. Ratings by rating agencies of insurance companies are not ratings of securities or recommendations to buy, hold or sell any security and are not applicable to the notes described in this prospectus.

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We may incur a reduction in our net income if our reserves are insufficient.

We maintain reserves to cover our estimated ultimate liability for losses and loss adjustment expenses (LAE) with respect to reported and unreported claims incurred as of the end of each period. Our gross loss and LAE reserves were $3.4 billion, $3.2 billion and $3.2 billion at December 31, 2001, 2002 and 2003, respectively. These reserves do not represent an exact measurement of liability, but are our estimates based upon various factors, including: (i) actuarial projections of what we, at a given time, expect to be the cost of the ultimate settlement and administration of claims reflecting facts and circumstances then known, (ii) estimates of future trends in claims severity and frequency, (iii) assessment of asserted theories of liability and (iv) analysis of other factors, such as variables in claims handling procedures, economic factors and judicial and legislative trends and actions. Most or all of these factors are not directly or precisely quantifiable, particularly on a prospective basis. For example, insurers have been held liable for large awards of punitive damages. In many cases, estimates are made more difficult by significant reporting lags between the occurrence of the insured event and the time it is actually reported to the insurer and additional lags between the time of reporting and final settlement of claims.

During the years ended December 31, 2001, 2002 and 2003, we increased our reserves for prior years’ losses and LAE by $183.1 million, $21.3 million and $123.0 million, respectively. The historical patterns upon which we typically would rely to develop reserves are not consistent with our current lines of business, net retention levels, premium sizes, risk profiles of insureds and other operational changes. Our organizational and process improvements over the past four years have led to claims settlement philosophy changes that have altered our historical paid and incurred claims patterns. During the same time period, soft market conditions in the immediate prior accident years caused deteriorating trends in our underwriting results. The combination of these factors over the past four years has made interpretation of the underlying data and data trends and quantification of reserve adequacy extremely difficult. See “Business— Reserves.” To the extent reserves prove to be deficient in the future, we will have to increase our reserves by the amount of such deficiency and incur a charge to earnings in the period such reserves are increased. The uncertainties regarding our reserves (including reserves for asbestos, environmental and other latent exposure claims as described below) could result in a liability exceeding the reserves by an amount that would be material to our financial condition or results of operations in a future period, and such liabilities would reduce future net income and cash flows and the ability of our insurance subsidiaries to pay dividends or make other distributions to us.

Even though most insurance policies have policy limits, the nature of property and casualty insurance is such that losses can exceed policy limits for a variety of reasons and could very significantly exceed the premiums received on the underlying policies. We attempt to limit our risk of loss through reinsurance, the availability and cost of which is subject to market conditions, which are beyond our control.

Under GAAP, we are only permitted to establish loss and LAE reserves for losses that have occurred on or before the financial statement date. Case reserves and reserves for incurred but not reported losses (IBNR) reserves contemplate these obligations. No contingency reserve allowances are established to account for future loss occurrences. Losses arising from future events will be estimated and recognized at the time the losses are incurred and could be substantial.

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Our reserves for asbestos, environmental and other latent claims may be insufficient.

There are significant additional uncertainties in estimating the amount of reserves required for asbestos, environmental and other latent exposure claims. The possibility that these claims would emerge was often not anticipated at the time the policies were written, and traditional actuarial reserving methodologies have not been generally useful in accurately estimating ultimate losses and LAE for these types of claims. In addition, the loss settlement period of certain of these claims may extend for decades after the expiration of the policy period, and during such time it often becomes necessary to adjust, sometimes to a significant degree, the estimates of liability on a claim either upward or downward. Our gross asbestos reserves were $298.2 million, $370.9 million and $495.2 million at December 31, 2001, 2002 and 2003, respectively; our gross environmental reserves were $217.8 million, $163.2 million and $130.5 million, respectively; and our gross reserves for other latent claims were $50.1 million, $43.5 million and $40.8 million, respectively. Our asbestos reserves, net of reinsurance, were $228.1 million, $264.8 million and $366.4 million, at December 31, 2001, 2002 and 2003, respectively; our environmental reserves, net of reinsurance, were $124.8 million, $105.8 million and $98.8 million, respectively; and our reserves for other latent exposure claims, net of reinsurance, were $27.3 million, $28.3 million and $26.7 million, respectively. Among the uncertainties relating to such reserves are a lack of historical data, long reporting delays and complex, unresolved legal issues regarding policy coverage and the extent and timing of any such contractual liability. Courts have reached different and frequently inconsistent conclusions as to when losses occurred, what claims are covered, under what circumstances the insurer has an obligation to defend, how policy limits are determined and how policy exclusions are applied and interpreted. Plaintiffs often are able to choose from a number of potential venues to bring an action in the court that they expect will be most advantageous to their claims. Because of these uncertainties, our exposure to asbestos, environmental and other latent exposure claims is more difficult to estimate and is subject to a higher degree of variability than is our exposure to non-latent exposure claims. In addition, insurers generally, including us, are generally experiencing an increase in the number of asbestos-related claims due to, among other things, more intensive advertising by lawyers seeking asbestos claimants, an increasing focus by plaintiffs on new and previously peripheral defendants and an increase in the number of insured entities seeking bankruptcy protection as a result of asbestos-related liabilities. In addition to contributing to the increase in claims, the bankruptcy proceedings of insureds may have the effect of significantly accelerating and increasing loss payments by insurers, including us. Recently a court required insurers of a bankrupt company to pay not only claims already made, but also to make payments for all estimated future claims.

Increasingly, policyholders have asserted that their claims for asbestos-related insurance are not subject to aggregate limits on coverage and that each individual bodily injury claim should be treated as a separate occurrence under the policy. We expect this trend to continue. Although it is difficult to predict whether these policyholders will be successful on the issue, to the extent the issue is resolved in their favor, our coverage obligations under the policies at issue could be materially increased and bounded only by the applicable per occurrence limits and the number of asbestos bodily injury claims against the policyholders. Accordingly, it is difficult to predict the ultimate size of the claims for coverage not subject to aggregate limits.

In addition, proceedings recently have been launched directly against insurers challenging insurers’ conduct with respect to asbestos claims, including in some cases with respect to previous settlements. We anticipate the filing of other direct actions against insurers,

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During 2002 and 2003, the asbestos-related trends described above both accelerated and became more visible. We have continued to see the emergence of the trends noted above, including an increased number of claimants filing asbestos claims against our insureds, an increased value of claims against viable asbestos defendants as co-defendants seek bankruptcy protection, and an increased number of insureds asserting that their asbestos claims are not subject to aggregate limits and that each individual bodily injury claim should be treated as a separate occurrence. During 2003, we increased our asbestos reserves by $149.8 million, net of reinsurance.

The effects of emerging claim and coverage issues on our business are uncertain.

As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may harm our business by either extending coverage beyond our underwriting intent or by increasing the number or size of claims. Recent examples of emerging claims and coverage issues that have affected us include:

The effects of these and other unforeseen emerging claim and coverage issues are extremely hard to predict and could harm our business.

We may be unable to obtain reinsurance coverage at reasonable prices or on terms that adequately protect us.

We use reinsurance to help manage our exposure to insurance risks. Reinsurance is a practice whereby one insurer, called the reinsurer, agrees to indemnify another insurer, called the ceding insurer, for all or part of the potential liability arising from one or more insurance policies issued by the ceding insurer. The availability and cost of reinsurance are subject to prevailing market conditions, both in terms of price and available capacity, which can affect our business volume and profitability. Many reinsurance companies have begun to exclude certain coverages from, or alter terms in, the policies that we purchase from them. Some exclusions are with respect to risks that we cannot exclude in policies we write due to business or regulatory constraints, such as coverage with respect to acts of terrorism, mold and cyber risk. In addition, reinsurers are imposing terms, such as lower per occurrence and aggregate limits, on primary insurers that are inconsistent with corresponding terms in the policies written by these primary insurers. As a result, we, like other primary insurance companies, are increasingly writing insurance policies which, to some extent, do not have the benefit of reinsurance protection. These gaps in reinsurance protection expose us to greater risk and greater potential losses.

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Since September 11, 2001, we have experienced significant price increases for reinsurance and have been forced to accept reduced reinsurance coverage. In addition, the scope of coverage in our reinsurance arrangements has been narrowed. For example, we are no longer able to procure unlimited reinsurance coverage for our workers’ compensation business; instead, our coverage for an accident year is subject to a maximum reinsured limit. We have considered, and will continue to consider, these changes in prices and terms from the third party reinsurance market in determining how much reinsurance to purchase and whether to obtain reinsurance from our affiliates (from whom we can generally obtain such reinsurance on fairer terms). In response, in part, to such changes, we have reduced the amount of reinsurance coverage we purchase and have increased the amount of reinsurance that we have obtained from our affiliates.

The Terrorism Risk Insurance Act of 2002 (TRIA) became effective on November 26, 2002 and is a three-year federal program effective through 2005. TRIA voided in-force terrorism exclusions as of November 26, 2002 for certified terrorism acts (i.e., those arising from international, not domestic, acts) on all TRIA specified property and casualty business. TRIA requires covered insurers to make coverage available for certified acts of terrorism on all new and renewal policies issued after TRIA was enacted. TRIA allows us to assess a premium charge for terrorism coverage and, if the policyholder declines the coverage or fails to pay the buy-back premium, certified acts of terrorism may then be excluded from the policy, subject, however, to state-specific requirements such as mandatory coverage for fire losses in statutory fire policy states. Subject to a premium-based deductible, and provided we have otherwise complied with all the requirements as specified in TRIA, we are eligible for reimbursement by the federal government for 90% of our covered terrorism related losses arising from a certified terrorist attack in 2004, with such reimbursement ending once the aggregated insured losses for the entire insurance industry exceed $100 billion in a single program year. Once this $100 billion loss threshold has been reached for any program year, any insurer covered under TRIA that has met its deductible will not be responsible for any further loss payments in that program year.

We bear credit risk with respect to our reinsurers, and certain insureds, and if one or more of them fails to pay us, we could experience losses which will adversely affect the ability of our insurance subsidiaries to pay dividends to us.

Although reinsurance makes the assuming reinsurer liable to us to the extent of the risk ceded, we are not relieved of our primary liability to our insureds as the direct insurer. As a result, we bear credit risk with respect to our reinsurers, both with respect to receivables reflected on our balance sheet as well as to contingent liabilities with respect to reinsurance protection on future claims. We cannot assure you that our reinsurers will pay all reinsurance claims on a timely basis or at all. At December 31, 2003, we had reinsurance recoverable on paid and unpaid losses and LAE, net of uncollectible reinsurance reserves, of $1,680.5 million due from approximately 315 reinsurers; however, the preponderance of these recoverables is with relatively few reinsurers. At such date, our ten largest gross reinsurance recoverables aggregated $1,224.2 million. After consideration of collateral we held in respect of these balances, the unsecured amounts due from these reinsurers was $554.1 million. We periodically have contractual disputes with certain reinsurers regarding coverage under reinsurance policies. Historically, this has principally occurred in the interpretation of coverage relating to asbestos and environmental claims. We evaluate each reinsurance claim based on the facts of the case, historical experience with the reinsurer on similar claims and existing case law and include in our reserve for uncollectible reinsurance any amounts deemed uncollectible. If reinsurers are

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We write certain retrospectively rated policies (policies in which premiums are adjusted based on the actual loss experience of the insured during the policy period) and large deductible policies (policies where the insured retains a specific amount of any potential loss) in which the insured must reimburse us for certain losses. Accordingly, we bear credit risk on these policies and cannot assure you that our insureds will pay us on a timely basis or at all. In the ordinary course of business, we are sometimes unable to collect all amounts billed to insureds, generally due to disputes on audit and retrospectively rated policies and, in some cases, due to insureds having filed for bankruptcy protection. In addition, if an insured files for bankruptcy, we may be unable to recover on assets such insured may have pledged to us as collateral. We reserve for uncollectible amounts in the period the collection issues become known. The inability to collect amounts due to us reduces our net income and cash flow and the ability of our insurance subsidiaries to pay dividends or make other distributions to us. During 2001, 2002 and 2003, we incurred, or expect that we will incur, credit losses relating to insured insolvencies, disputed premium audits and for insureds experiencing financial difficulties. For the years ended December 31, 2001, 2002 and 2003, we incurred charges for uncollectible premiums and large deductible recoveries of $4.6 million, $9.7 million and $5.6 million, respectively.

Because we are a wholly-owned subsidiary of Fairfax and because we have entered into and may continue to enter into reinsurance arrangements, tax sharing arrangements and investment advisory and similar agreements and make investments in and otherwise engage in transactions with affiliates of Fairfax, we may be adversely affected by the prospects and actions of, as well as the results of operations of, Fairfax and its affiliates.

Fairfax, through its wholly-owned subsidiary Fairfax Inc., owns 100% of our outstanding common stock. Fairfax’s subordinate voting shares are listed on both the New York Stock Exchange and the Toronto Stock Exchange under the symbol “FFH.” For the year ended December 31, 2003, the highest price of Fairfax’s subordinate voting shares on the New York Stock Exchange was $178.50 and the lowest price was $50.50. For the year ended December 31, 2003, the highest price of Fairfax’s subordinate voting shares on the Toronto Stock Exchange was Cdn$248.55 and the lowest price was Cdn$57.00. The closing price of the subordinate voting shares on March 11, 2004 on the New York Stock Exchange was $151.41 and the closing price of such shares on March 11, 2004 on the Toronto Stock Exchange was Cdn$200.00. Fairfax’s senior debt is rated “BB” by S&P and “Ba3” negative by Moody’s, reflecting, in the case of Moody’s, leverage and liquidity concerns of Moody’s related to Fairfax’s cash position and upcoming debt maturities. Fairfax owns significant subsidiaries and operations that are not part of our company or our business. Although neither Fairfax nor any of its subsidiaries (other than us and our subsidiaries), including insurance or reinsurance companies and service providers, many of which provide financial or other reinsurance or other services to us, will have any responsibility for payment of principal or interest on the notes, a downgrade of any of their debt ratings, or deterioration in the financial markets’ view of these

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Our capital stock and the capital stock of our direct parent Fairfax Inc. have been provided to lenders as collateral for obligations owed to them by Fairfax and its affiliates. A change of control with respect to us (as a result of these collateral arrangements or otherwise) could have an adverse impact upon us, including a reduction in the value of the net operating loss carryforwards included in our deferred tax assets ($20.0 million at December 31, 2003), principally as a result of limitations imposed by United States income tax law on utilization of our net operating loss carryforwards as a result of a change of control. In addition, to the extent that lenders to Fairfax have the benefit of collateral arrangements provided by Fairfax, the exercise of their remedies (which could result in a change of control of Fairfax or increased leverage or cash flow requirements at Fairfax) could have an adverse impact against Fairfax or on the notes.

Control of our corporate actions is within the control of Fairfax, which may have interests that are different from the interests of holders of the notes.

Because of Fairfax’s beneficial ownership of us, it is in a position to determine the outcome of corporate actions requiring stockholder approval, including:

Because Fairfax’s interests as an equity holder may conflict with the interests of holders of the notes, Fairfax may cause us to take actions that favor our equity holders at the expense of the holders of the notes. In addition, all of our directors also are directors or officers of Fairfax and its affiliates.

Certain relationships and related transactions with affiliates may result in conflicts and the adverse concentrations of financial risk.

Under various agreements with affiliates, we have agreed (and may continue to agree) to cede certain rights and obligations, and to assume certain other rights and obligations, in respect of a variety of business in a number of states, from subsidiaries of Fairfax, including Odyssey America Reinsurance Corporation, Clearwater Insurance Company (formerly Odyssey

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We are members of a tax sharing agreement with Fairfax as described in “Certain relationships and related party transactions— Tax sharing agreements.”

In addition, Fairfax provides us with certain services. For example, a subsidiary of Fairfax manages the investments of our insurance subsidiaries, including investments in certain equity and debt securities of other affiliates of Fairfax. See note 4 and note 10 to our audited consolidated financial statements contained elsewhere in this prospectus. See also “Business— Investments— Investments in affiliates.” Conflicts of interest could arise between our company and Fairfax or one of its other affiliates, and any conflict of interest may be resolved in a manner that does not favor us.

Fairfax’s bank credit facilities contain restrictions applicable to us, which could have an adverse effect on our financial condition.

The agreements governing the bank credit facilities of Fairfax contain restrictive covenants which prohibit Fairfax, with certain exceptions, from allowing us to borrow money or take certain other actions. Although Crum & Forster is not a party to the Fairfax credit facility, it is expected, and should be assumed, that Fairfax will not permit Crum & Forster to borrow additional funds unless we are permitted to do so pursuant to the Fairfax credit facility.

Our business could be adversely affected by the loss of one or more key employees.

We are substantially dependent on a small number of key employees at our operating companies, in particular Bruce Esselborn, Nikolas Antonopoulos and Mary Jane Robertson. We believe that the experiences and reputations in the insurance industry of Mr. Esselborn, Mr. Antonopoulos and Ms. Robertson are important factors in our ability to attract new business. Our success has been, and will continue to be, dependent on our ability to retain the services of our existing key employees and to attract and retain additional qualified personnel in the future. The loss of the services of Mr. Esselborn, Mr. Antonopoulos or Ms. Robertson or any other key employee, or the inability to identify, hire and retain other highly qualified personnel in the future, could adversely affect the quality and profitability of our business operations. Mr. Esselborn intends, on or about July 2004 when he turns 62, to either retire fully

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The loss of any of our key producers could have an adverse effect on our financial condition.

In 2003, our two largest producers accounted for 15.1% and 5.8% of our gross premiums written. Our top five producers, including all locations of national brokers, accounted for 31.3% of gross premiums written. However, on an individual office basis, the top five producers accounted for 10.8% of 2003 gross premiums written. We have no long term commitments from any of our producers, any of whom could cease doing business with us at any time. The loss or deterioration of one or more of these relationships could adversely affect our financial condition. We may not be successful in maintaining our current relationships with our significant producers, which could have an adverse effect on our financial condition.

We operate in a highly competitive environment, which makes it more difficult for us to attract and retain business.

The commercial lines property and casualty insurance industry is highly competitive and we believe that it will remain so for the foreseeable future. Prevailing conditions relating to price, coverage and capacity can change very rapidly in this industry sector. We face competition from domestic and foreign insurers, many of which may be perceived to provide greater security to insureds and many of which are larger and have greater financial, marketing and management resources than we do. Competition in the commercial lines property and casualty insurance industry is based on many factors, including overall financial strength of the insurer, ratings by rating agencies, price, policy terms and conditions, services offered, reputation, agent and broker compensation and experience. We may face increased competition in the future from other insurance companies, and such increased competition, should it occur, could make it difficult for us to underwrite new business or put downward pressure on the pricing of new business underwritten by us. See “Business— Competition.”

Several commercial property and casualty insurers and industry groups and associations currently offer alternative forms of risk protection in addition to traditional insurance products. These products, including large deductible programs and various forms of self-insurance that utilize captive insurance companies and risk retention groups, have been instituted to allow for better control of risk management and costs. We cannot predict how continued growth in alternative forms of risk protection will affect our future operations, but it could reduce our premium volume.

Following the terrorist attacks on September 11, 2001, a number of new insurers and reinsurers have been formed to compete in our industry, and a number of existing market participants have raised new capital which may enhance their ability to compete with us. In addition, other financial institutions are now able to offer services similar to our own as a result of the Gramm-Leach-Bliley Act, which was adopted in November 1999.

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Results in the property and casualty insurance industry are subject to fluctuations and uncertainty which may adversely affect our ability to write policies.

The results of companies in the property and casualty insurance industry historically have been subject to broad fluctuations. These results can be affected significantly by price competition, volatile and unpredictable developments (including catastrophes), changes in loss reserves resulting from changing legal environments as different types of claims arise and judicial interpretations relating to the scope of insurers’ liability develop, fluctuations in interest rates and other changes in the investment environment which affect returns on invested assets and inflationary pressures that affect the size of losses. The property and casualty insurance industry historically has experienced pricing and profitability cycles related to levels of industry underwriting capacity. As a result of fluctuations in pricing, we may be unable to obtain business that meets our underwriting standards and pricing expectations. See “Business— Competition” and “Management’s discussion and analysis of financial condition and results of operations.”

Catastrophic events could reduce our net income.

Catastrophes can be caused by various natural and unnatural events. Natural catastrophic events include hurricanes, windstorms, earthquakes, hailstorms, explosions, severe winter weather and fires. Unnatural catastrophic events include terrorist acts, riots, crashes and derailments. The incidence and severity of catastrophes are inherently unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. Most catastrophes are restricted to small geographic areas; however, hurricanes, windstorms and earthquakes may produce significant damage in large, heavily populated areas. Catastrophes can cause losses in a variety of property and casualty lines for which we provide insurance. For example, the terrorist attacks on September 11, 2001 caused losses in several of our lines, including business interruption, business personal property and workers’ compensation. Insurance companies are not permitted to reserve for a catastrophe until it has occurred, and actual losses could exceed measures we might take to attempt to protect us. It is therefore possible that a catastrophic event or multiple catastrophic events could adversely affect our net income and financial condition. Increases in the value and geographic concentration of insured property and the effects of inflation could increase the severity of claims from future catastrophic events. In addition, states have from time to time passed legislation that has had the effect of limiting the ability of insurers to manage catastrophic risk, such as legislation prohibiting insurers from withdrawing from catastrophe-prone areas.

During 2003, we incurred losses of $33.4 million, net of reinsurance, from numbered catastrophes. Our ultimate exposure to losses from these events may be higher.

If we are unable to realize our investment objectives, our financial condition may be adversely affected.

Our operating results depend in part on the performance of our investment portfolio. The ability to achieve our investment objectives is affected by general economic conditions that are beyond our control. General economic conditions can adversely affect the markets for interest-rate-sensitive securities, including the extent and timing of investor participation in such markets, the level and volatility of interest rates and, consequently, the value of fixed income securities. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond

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If certain policies with respect to which other insurance companies have assumed liability from us have not been effectively novated, we could be subject to increased liabilities that are not reflected on our balance sheet, including with respect to asbestos, environmental or other latent exposures.

Prior to our acquisition by Fairfax in 1998, we were a subsidiary of Xerox Corporation. In connection with a business realignment and restructuring of its insurance companies, Xerox required the transfer of a number of policies and related assets and liabilities from certain of our insurance company subsidiaries to other insurance companies also controlled by Xerox and vice versa. These transfers were effected through assumption and indemnity reinsurance agreements providing for 100% quota share reinsurance of the subject business by the assuming company. In some cases, the assuming party also was required to seek a novation of certain policies. Novation of an insurance policy attempts to effect the legal substitution of one insurance company for the original policy-issuing company and generally requires either the express or implied consent of the policyholder. If the novation process is challenged and not upheld (especially as to novation achieved by “implied” consent), our insurance subsidiaries could be responsible for such novated business if the other party were to become insolvent. These liabilities are not reflected on our balance sheet. Our reserves could be understated and the credit risk associated with policies considered novated could also be materially understated. We may be unable to recover our losses from the reinsurers that have reinsured these policies. To date we have not experienced any challenges of novations of these policies.

We are subject to extensive government regulation, which may limit the rates we can charge or otherwise adversely affect our business.

We are subject to extensive regulation and supervision in the states in which we do business. Regulators oversee matters relating to rate setting with respect to certain lines of insurance, trade practices, market conduct, policy forms, claims practices, mandated participation in shared markets, types and amounts of investments, reserve adequacy, insurer solvency, minimum amounts of capital and surplus, authorized lines of business, transactions with related parties, the payment of dividends and a variety of other financial and non-financial components of an insurance company’s business. Regulators may limit the rates that an insurance company can charge for certain lines of business so that premium rates may not keep pace with inflation. State insurance laws and regulations are administered by agencies that have broad powers and are concerned primarily with the protection of policyholders rather than shareholders or other investors. It is possible that future regulatory changes or developments would impede rate increases or other actions that we propose to take to enhance our operating results, or fundamentally change the business environment in which we operate.

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Our operating subsidiaries typically are required to participate in mandatory property and casualty shared market mechanisms or pooling arrangements which provide various insurance coverage to individuals or other entities that are otherwise unable to purchase such coverage in the commercial insurance marketplace. The amount of future losses or assessments from such shared market mechanisms and pooling arrangements cannot be predicted with certainty. The underwriting results of these pools historically have been unprofitable. Future losses or assessments from such mechanisms and pooling arrangements could adversely affect our results of operations or financial condition.

In recent years, the insurance regulatory framework has come under increased federal scrutiny, and certain state legislatures have considered or enacted laws that altered and, in many cases, increased state authority to regulate insurance companies and insurance holding companies. For example, the states of Hawaii and Florida have implemented arrangements whereby property insurance in catastrophe prone areas is provided through state-sponsored entities. The California Earthquake Authority, the first privately financed, publicly operated, residential earthquake insurance pool, provides earthquake insurance to California homeowners. Further, the National Association of Insurance Commissioners (NAIC) and state insurance regulators are re-examining existing laws and regulations, specifically focusing on investment practices, risk-based capital guidelines, interpretations of existing laws and the development of new laws. In addition, several committees of Congress have made inquiries and conducted hearings as part of a broad study of the regulation of insurance companies. Although the federal government currently does not regulate the business of insurance directly, federal initiatives often affect the insurance industry in a variety of ways. Future legislation or NAIC initiatives may have a detrimental effect on the conduct of our business, financial condition or results of operations. See “Insurance regulatory matters.”

Risks relating to the notes

We are a holding company and are dependent on dividends from our insurance operating subsidiaries to pay interest and principal on the notes. Our principal insurance subsidiary is permitted under its governing state insurance laws to pay dividends to us in 2004, subject to statutory limitations, and our other major insurance operating subsidiary is currently not permitted to pay any shareholder dividends to us. Our insurance operating subsidiaries may be unable to pay dividends to us after funds in the interest escrow account are exhausted.

We are a holding company with no direct operations, and our principal asset is the capital stock of several insurance operating subsidiaries. We will rely on dividends from these operating subsidiaries to meet our obligations for payment of interest on the notes and, together with refinancing opportunities, if any, then available to us in capital markets, to repay the notes at maturity, and to meet our other liabilities. Our principal insurance operating subsidiaries, accounting for 97.7% of combined statutory surplus at December 31, 2003, are US Fire, domiciled in the State of Delaware, and North River, domiciled in the State of New Jersey. US Fire may pay dividends of $80.0 million in 2004 without prior regulatory approval. North River currently does not have the ability under applicable state law discussed below to pay dividends to us and is not expected to have any ability to pay dividends until 2005 at the earliest. The ability of our operating subsidiaries to pay dividends to us depends on their statutory earned surplus (which is increased by underwriting profit and investment income and decreased by underwriting losses including losses as a result of adverse development for prior

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Delaware laws provide that before a Delaware domiciled insurer may pay any dividend it must have given notice within five days following the declaration thereof and 10 days prior to the payment thereof to the state insurance commissioner. During this 10-day period, the commissioner may, by order, limit or disallow the payment of ordinary dividends if he or she finds the insurer to be presently or potentially in financial distress. At any time, under Delaware Insurance Regulations, the state insurance commissioner may issue an order disallowing or limiting the payment of dividends by an insurer if the commissioner determines that the insurer is presently or potentially financially distressed or troubled. Without the prior approval of the state insurance commissioner, a Delaware domiciled insurer may only pay cash dividends from its earned surplus. Earned surplus is defined as that amount equal to the unassigned funds of an insurer as set forth in the most recent annual statements of the insurer submitted to the state insurance commissioner, including all or a part of the surplus arising from unrealized capital gains or revaluation of assets. Additionally, a Delaware domiciled insurer may not pay any “extraordinary” dividend or distribution until (i) 30 days after the state insurance commissioner has received notice of a declaration of the dividend or distribution and has not within that period disapproved the payment, or (ii) the state insurance commissioner has approved the payment within the 30-day period. Under the Delaware Insurance Code, an “extraordinary” dividend of a property and casualty insurer is a dividend, the amount of which, together with all other dividends and distributions made in the preceding 12 months, exceeds the greater of (i) 10% of an insurer’s surplus with respect to policyholders, as of the end of the prior calendar year, or (ii) the insurer’s statutory net income, not including realized capital gains, for the prior calendar year. US Fire reported earned surplus of $145.6 million at December 31, 2003 and, pursuant to the foregoing rules, may pay dividends of up to $80.0 million in 2004 before reaching, as defined, the “extraordinary” level.

New Jersey laws provide that an insurer domiciled in the state must obtain the approval of the state insurance commissioner for payment of any dividend which, together with dividends paid in the previous 12 months, exceeds the greater of (i) 10% of policyholders’ surplus at the preceding December 31, or (ii) statutory net income (excluding realized gains) for the 12-month period ending the preceding December 31. In New Jersey, dividends may not be paid unless prior notice has been given to the New Jersey Department of Banking and Insurance (NJDOBI) within five business days after the dividend is declared and 30 days prior to payment. In addition, except for extraordinary dividends or distributions paid with the approval of the NJDOBI, dividends may be paid by insurers domiciled in New Jersey only from earned surplus, which means “unassigned funds (surplus)” as reported on the insurer’s annual statement as of December 31 next preceding, less unrealized capital gains and revaluation of assets. North River reported negative earned surplus of $5.5 million at December 31, 2003 and, as a result, North River has no dividend capacity.

Earned surplus is generally increased by reported statutory net income. However, if reported statutory net income includes a benefit from retroactive reinsurance (losses ceded in excess of

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Additionally, further legislative proposals relating to dividend regulations may be enacted in Delaware or New Jersey which could place additional restrictions on our insurance operating subsidiaries’ ability to pay dividends and the insurance commissioner of every state has broad authority to limit payments (dividends or otherwise) by domestic insurance companies if the insurance commissioner believes payments would leave the insurer in a hazardous financial condition. Moreover, some or all of the domiciliary states of our operating subsidiaries may adopt regulatory provisions more restrictive than the dividend payment controls currently in effect, which would further negatively impact our ability to meet our obligations under the notes. See “Management’s discussion and analysis of financial condition and results of operations— Liquidity and capital resources” and “Insurance regulatory matters— Regulation of dividends and other payments from our operating subsidiaries.”

Although a portion of the net proceeds of the old notes are maintained in an interest escrow account that will provide funds sufficient to make the next three payments of interest on the notes, at the time the funds in the interest escrow account are exhausted, our operating subsidiaries may not be permitted to pay dividends to us in amounts sufficient to permit us to fulfill our obligations with respect to the notes. If this were to occur, our ability to make payments on the notes would be dependent on us being able to raise additional funds from public or private equity or debt financing and any such financing may not be available to us on acceptable terms or at all. Additionally, the indenture restricts our ability to incur additional indebtedness at any time when our subsidiaries are unable to pay dividends to us and the terms of our, and Fairfax’s, other indebtedness will contain restrictions on our ability to incur indebtedness. Furthermore, Fairfax may not be permitted, or may be unwilling, to invest additional amounts in us. Many of the other factors described herein (principally including the need to increase our reserves in the future because of asbestos, environmental or other latent exposures) could adversely affect the ability of our insurance subsidiaries to pay dividends to us.

Fairfax will not have any obligation under the notes.

Fairfax is not an obligor or guarantor of our obligations under the notes and the indenture. Although we may borrow from Fairfax, under certain circumstances, to meet certain of our obligations under the notes or otherwise, we cannot assure you, and you should not assume, that Fairfax will be able to lend us amounts we seek to borrow from them from time to time. See “Certain relationships and related transactions— Borrowing from Fairfax.” Our ability to pay interest on the notes depends principally on our ability to receive dividends from our insurance subsidiaries, and our ability to pay the notes at maturity depends primarily on our ability to receive such dividends and on refinancing opportunities, if any, then available to us in capital markets.

Our debt could limit our flexibility, adversely affect our financial health and prevent us from making payments on the notes.

As of December 31, 2003, we had approximately $300.0 million of debt (which does not include insurance obligations of our operating subsidiaries or borrowings available under the Fairfax note) and our annual debt service requirements are approximately $31.1 million.

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Our debt could have important consequences to you. For example, it could:

Our financial and operating performance, cash flow and capital resources depend upon prevailing economic conditions and certain financial, business and other factors, many of which are beyond our control. These factors include, among others, factors affecting the commercial property and casualty industry generally.

If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to sell material assets or operations, obtain additional capital or restructure our debt. In the event that we are required to dispose of material assets or operations or restructure our debt to meet our debt service and other obligations, we cannot assure you as to the terms of any such transaction or how quickly any such transaction could be completed, if at all.

We may incur substantial additional indebtedness in the future. Our incurrence of additional indebtedness would intensify the risks described above.

The notes indenture contains various restrictive covenants that limit our management’s discretion in operating our business. In particular, these covenants limit our ability to, among other things:

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If we fail to comply with the restrictions in the notes indenture or any other subsequent financing agreements, a default may allow the creditors, if the agreements so provide, to accelerate the related debt as well as any other debt to which a cross-acceleration or cross-default provision applies. We are currently in compliance with all of our debt covenants.

The notes are effectively subordinated to all of the obligations of our insurance operating subsidiaries, including all of our liabilities with respect to insurance policies that we have written or will write in the future, and any other subsidiary that does not guarantee the notes and guarantees.

None of our subsidiaries is a guarantor of the notes. Additionally, the indenture does not require subsidiaries we acquire in the future to guarantee the notes under certain circumstances, including if any such subsidiary is regulated as an insurance company under relevant state law. These non-guarantor subsidiaries have no obligation, contingent or otherwise, to pay any amounts due pursuant to the notes or to make any funds available therefor, whether by dividends, loans, distributions or other payments. Any right that we have to receive any assets of any of our subsidiaries upon the liquidation or reorganization of any such subsidiary, and the consequent right of holders of the notes to realize proceeds from the sale of such assets, will be effectively subordinated to the claims of these subsidiaries’ creditors and to coverage claims under insurance policies written by these subsidiaries.

Federal and state statutes may allow courts to void the notes and any guarantees and require noteholders to return payments received from us or any guarantor or subordinate the notes to our, or such guarantor’s, other liabilities.

Creditors of any business are protected by fraudulent conveyance laws which differ among various jurisdictions, and these laws may apply to the assumption of the notes by us and any guarantees that are provided by our subsidiaries. Generally, the notes or the guarantees could be voided by a court or subordinated to the claims of other creditors if a court were to determine:

Since the net proceeds from the note offering, other than amounts deposited into the interest escrow account, were distributed to Fairfax rather than being used in our and our subsidiaries’ businesses, a court might determine that we did not receive “fair consideration” or “reasonably equivalent value” for issuing the notes. If a court were to make this determination

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The rights of the trustee to foreclose upon the assets in the interest escrow account may be impaired by bankruptcy law.

The rights of the trustee under the indenture and the escrow agreement to foreclose upon and sell the assets in the interest escrow account upon the occurrence of an event of default on the notes is likely to be significantly impaired by applicable bankruptcy law if a bankruptcy or reorganization case were to be commenced by or against Crum & Forster or one or more of its subsidiaries. Under applicable bankruptcy law, secured creditors such as the holders of the notes would be prohibited from foreclosing upon or disposing of a debtor’s property without prior bankruptcy court approval. See “Description of the notes— Escrow of proceeds— Interest escrow account.”

We may be unable to purchase your notes upon a change of control.

Upon the occurrence of specified “change of control” events, we will be required to offer to purchase your notes. We may not have sufficient financial resources to purchase all of the notes that holders tender to us upon a change of control offer, or might be prohibited from doing so under any Fairfax credit facility or other indebtedness of Fairfax or us. The occurrence of a change of control also could constitute an event of default under any Fairfax credit facility or the other indebtedness of Fairfax or us. See “Description of the notes— Change of Control.”

Certain covenants contained in the indenture are not applicable during any period in which the notes are rated investment grade by both Standard & Poor’s and Moody’s.

The indenture provides that certain covenants will not apply to us during any period in which the notes are rated investment grade by both Standard & Poor’s and Moody’s. The covenants restrict, among other things, our ability to pay dividends, incur debt and to enter into other transactions. The notes may never be rated investment grade, and if they are rated investment grade, the notes may not maintain such rating. However, suspension of these covenants would allow us to engage in certain transactions that would not be permitted while these covenants were in force and any such actions that we take while these covenants are not in force will be permitted even if the notes are subsequently downgraded below investment grade. These transactions include incurring additional debt, making distributions, acquiring our capital stock, acquiring another business, selling assets valued over $2.5 million and engaging in transactions with affiliates that would otherwise be prohibited. See “Description of the notes— Suspension of covenants.”

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Your ability to resell the notes may be limited by a number of factors; prices for the notes may be volatile.

The notes are a new class of our securities for which there currently is no established market, and we cannot assure you that any active or liquid trading market will develop for the notes, if any. We do not intend to apply for listing of the notes on any securities exchange or on any automated dealer quotation system. If a market for the notes were to develop, the notes could trade at prices that may be higher or lower than their initial offering price, depending on many factors, including among other things:

In addition, the market for non-investment grade debt has historically been subject to disruptions that have caused substantial volatility in the prices of securities similar to the notes offered hereby. The market for the notes, if any, may be subject to similar disruptions. Any such disruption could adversely affect the value of your notes.

The original issue discount may limit your claims in certain circumstances.

If a bankruptcy case is commenced by or against us under the United States Bankruptcy Code of 1978, as amended, the claim of a holder of notes with respect to the principal amount thereof may be limited to an amount equal to the sum of (i) the original issue price of the notes and (ii) that portion of the original issue discount (as determined on the basis of such issue price) which is not deemed to constitute “unmatured interest” for purposes of the U.S. Bankruptcy Code. Any original issue discount that was not amortized as of any such bankruptcy filing could constitute “unmatured interest.”

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Statements regarding forward-looking information

This prospectus contains forward-looking statements. These are statements that relate to future periods and include statements regarding our anticipated performance. In addition, the outcome of pending motions or appeals, if any, related to litigation discussed herein is unknown.

Generally, the words anticipates, believes, expects, intends, estimates, projects, plans and similar expressions identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements or industry results to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Many of these risks are described under the “Risk Factors” section in this prospectus.

Although we believe that these statements are based upon reasonable assumptions, we can give no assurance that our goals will be achieved. Given these uncertainties, prospective investors are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are made as of the date of this prospectus. We assume no obligation to update or revise them or provide reasons why actual results may differ.

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Exchange offer

Terms of the exchange offer

General

The old notes were initially issued by Crum & Forster Funding Corp., a Delaware corporation formed by Policy, Inc. as a special purpose entity solely for the purpose of issuing the old notes. We are neither a shareholder nor an affiliate of Crum & Forster Funding Corp. nor of Policy, Inc. We were unable to issue the old notes because of certain restrictive covenants in the agreements governing Fairfax’s credit facilities at the time of the issuance of the old notes. Subsequent to the initial issuance of the old notes, Fairfax entered into revised credit facilities that allowed us to assume all of Crum & Forster Funding Corp.’s outstanding obligations under the old notes and the indenture governing the old notes.

In connection with the issuance of the old notes, we entered into a registration rights agreement, dated June 5, 2003, with the initial purchasers of the old notes. The following contains a summary of the provisions of the registration rights agreement. It does not contain all of the information that may be important to an investor in the notes. We refer you to the registration rights agreement, which has been filed as an exhibit to this registration statement.

Under the registration rights agreement, we agreed (1) to file with the Securities and Exchange Commission (SEC) the registration statement of which this prospectus is a part with respect to a registered offer to exchange the old notes for the new notes, and (2) to use reasonable best efforts to complete the exchange offer within 180 days after the date of our assumption of the old notes on June 30, 2003. We will keep the exchange offer open for the period required by applicable law, but in any event for at least 20 business days after the date notice of the exchange offer is mailed to holders of the old notes. We did not complete the exchange offer within 180 days after we assumed the old notes and, therefore, under the registration rights agreement we must pay additional interest on the old notes until the exchange offer is completed. Additional interest accrues at a rate of 0.25% per annum for the first 90 days and increases by 0.25% per annum for each subsequent 90-day period during which the exchange offer has not been completed, to a maximum of 1.00%.

Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, all old notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the expiration date will be accepted for exchange. New notes will be issued in exchange for an equal principal amount of outstanding old notes accepted in the exchange offer. Old notes may be tendered only in integral multiples of $1,000. This prospectus, together with the letter of transmittal, is being sent to all holders as of March 16, 2004. The exchange offer is not conditioned upon any minimum principal amount of old notes being tendered for exchange. However, the obligation to accept old notes for exchange pursuant to the exchange offer is subject to certain customary conditions as set forth herein under “—Conditions.”

Old notes shall be deemed to have been accepted as validly tendered when, as and if we have given oral or written notice thereof to The Bank of New York, the exchange agent. The exchange agent will act as agent for the tendering holders of old notes for the purposes of receiving the new notes and delivering new notes to such holders.

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Based on interpretations by the Staff of the SEC as set forth in no-action letters issued to third parties (including Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated (available June 5, 1991), K-III Communications Corporation (available May 14, 1993) and Shearman & Sterling (available July 2, 1993), we believe that the new notes issued pursuant to the exchange offer may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder that is a broker-dealer or an “affiliate” of us within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that:

We have not sought, and do not intend to seek, a no-action letter from the SEC with respect to the effects of the exchange offer, and we cannot assure you that the Staff would make a similar determination with respect to the new notes as it has in such no-action letters.

By tendering old notes in exchange for new notes and executing the letter of transmittal, each holder will represent to us that:

If such holder is a broker-dealer, it will also be required to represent that the old notes were acquired as a result of market-making activities or other trading activities and that it will deliver a prospectus in connection with any resale of new notes. See “Plan of distribution.” Each holder, whether or not it is a broker-dealer, shall also represent that it is not acting on behalf of any person that could not truthfully make any of the foregoing representations contained in this paragraph. If a holder of old notes is unable to make the foregoing representations, such holder may not rely on the applicable interpretations of the Staff of the SEC and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction unless such sale is made pursuant to an exemption from such requirements.

Each broker-dealer that receives new notes for its own account in exchange for old notes where such old notes were acquired by such broker-dealer as a result of market-making or other trading activities, must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act and that it has not entered into any arrangement or understanding with us or an affiliate of ours to distribute the new notes in connection with any resale of such new notes. See “Plan of distribution.”

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Upon consummation of the exchange offer, any old notes not tendered will remain outstanding and continue to accrue interest but, subject to certain limited exceptions, holders of old notes who do not exchange their old notes for new notes in the exchange offer will no longer be entitled to registration rights and will not be able to offer or sell their old notes, unless such old notes are subsequently registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Subject to limited exceptions, we will have no obligation to effect a subsequent registration of the old notes.

Expiration date; Extensions; Amendments; Termination

The expiration date shall be April 14, 2004 unless we, in our sole discretion, extend the exchange offer, in which case the expiration date shall be the latest date to which the exchange offer is extended.

To extend the expiration date, we will notify the exchange agent of any extension by oral or written notice and will notify the holders of old notes by means of a press release or other public announcement prior to 9:00 A.M., New York City time, on the next business day after the previously scheduled expiration date. Such announcement may state that we are extending the exchange offer for a specified period of time.

We reserve the right:

Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice to the exchange agent. If the exchange offer is amended in a manner determined by us to constitute a material change, we will promptly disclose such amendment in a manner reasonably calculated to inform the holders of the old notes of such amendment. In addition, if we amend or terminate the exchange offer, we will promptly file a post-effective amendment to the registration statement of which this prospectus forms a part.

Without limiting the manner in which we may choose to make public announcement of any delay, extension, amendment or termination of the exchange offer, we shall have no obligations to publish, advertise or otherwise communicate any such public announcement, other than by making a timely release to an appropriate news agency.

Interest on the new notes

The new notes will accrue interest at the rate of 10 3/8% per annum from the last interest payment date on which interest was paid on the old note surrendered in exchange therefor, provided, that if an old note is surrendered for exchange on or after a record date for an interest payment date that will occur on or after the date of such exchange and as to which interest will be paid, interest on the new note received in exchange therefor will accrue from

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Procedures for tendering

To tender in the exchange offer, a holder must complete, sign and date the applicable letter of transmittal or a facsimile thereof, have the signatures thereon guaranteed if required by the letter of transmittal, and mail, or otherwise deliver such letter of transmittal or such facsimile, together with any other required documents, to the exchange agent prior to 5:00 p.m., New York City time, on the expiration date. In addition, either:

The method of delivery of old notes, letter of transmittal and all other required documents is at the election and risk of the noteholders. If such delivery is by mail, it is recommended that registered mail, properly insured, with return receipt requested, be used. In all cases, sufficient time should be allowed to assure timely delivery. No old notes, letters of transmittal or other required documents should be sent to us. Delivery of all old notes, if applicable, letters of transmittal and other documents must be made to the exchange agent at its address set forth in the letter of transmittal. Holders may also request their respective brokers, dealers, commercial banks, trust companies or nominees to effect such tender for such holders.

The tender by a holder of old notes will constitute an agreement between such holder and us in accordance with the terms and subject to the conditions set forth herein and in the applicable letter of transmittal. Any beneficial owner whose old notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and instruct such registered holder to tender on his behalf.

Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed by any member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an “eligible guarantor” institution within the meaning of Rule 17Ad-15 under the Exchange Act or an eligible institution unless the old notes tendered pursuant thereto are tendered (1) by a registered holder of old notes who has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal or (2) for the account of an eligible institution.

If a letter of transmittal is signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such

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All questions as to the validity, form, eligibility, time of receipt and withdrawal of the tendered old notes will be determined by us in our sole discretion, which determination will be final and binding. We reserve the absolute right to reject any and all old notes not properly tendered or any old notes which, if accepted, would, in the opinion of counsel for us, be unlawful. We also reserve the absolute right to waive any irregularities or conditions of tender as to particular old notes. We will not waive any condition of the offer with respect to an individual holder unless we waive that condition for all holders. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of old notes must be cured within such time as we shall determine. Neither we, the exchange agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of old notes, nor shall any of them incur any liability for failure to give such notification. Tenders of old notes will not be deemed to have been made until such irregularities have been cured or waived. Any old note received by the exchange agent that is not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned without cost to such holder by the exchange agent, unless otherwise provided in the letter of transmittal, promptly following the expiration date.

In addition, we reserve the right, in our sole discretion, subject to the provisions of the indenture pursuant to which the notes are issued:

The terms of any such purchases or offers could differ from the terms of the exchange offer.

Each broker-dealer that receives new notes for its own account in exchange for old notes where such new notes were acquired by such broker-dealer as a result of market-making or other trading activities, must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act and that it has not entered into any arrangement or understanding with us, or an affiliate of ours, to distribute the new notes in connection with any resale of such new notes. See “Plan of Distribution.”

Acceptance of old notes for exchange; Delivery of new notes

Upon satisfaction or waiver of all of the conditions to the exchange offer, all old notes properly tendered will be accepted promptly after the expiration date and the new notes will be issued promptly after acceptance of the old notes. See “—Conditions.” For purposes of the exchange offer, old notes shall be deemed to have been accepted as validly tendered for exchange when, as and if we have given oral or written notice thereof to the exchange agent.

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In all cases, issuance of new notes for old notes that are accepted for exchange pursuant to the exchange offer will be made only after timely receipt by the exchange agent of:

If any tendered old notes are not accepted for any reason described in the terms and conditions of the exchange offer, such unaccepted or such nonexchanged old notes will be returned promptly without expense to the tendering holder thereof (if in certificated form), or credited to an account maintained with such book-entry transfer facility after the expiration or termination of the exchange offer.

Book-entry transfer

The exchange agent has established an account with respect to the old notes at the book-entry transfer facility for purposes of the exchange offer. Any financial institution that is a participant in the book-entry transfer facility’s systems may make book-entry delivery of old notes by causing the book-entry transfer facility to transfer such old notes into the exchange agent’s account at the book-entry transfer facility in accordance with such book-entry transfer facility’s procedures for transfer. However, although delivery of old notes may be effected through book-entry transfer at the book-entry transfer facility, the letter of transmittal or facsimile thereof with any required signature guarantees and any other required documents must, in any case, be transmitted to and received by the exchange agent at the address set forth in the letter of transmittal on or prior to the expiration date or the guaranteed delivery procedures described below must be complied with.

Exchanging book-entry notes

The exchange agent and the book-entry transfer facility have confirmed that any financial institution that is a participant in the book-entry transfer facility may utilize the book-entry transfer facility Automated Tender Offer Program, or ATOP, procedures to tender old notes.

Any participant in the book-entry transfer facility may make book-entry delivery of old notes by causing the book-entry transfer facility to transfer such old notes into the exchange agent’s account in accordance with the book-entry transfer facility’s ATOP procedures for transfer. However, the exchange for the old notes so tendered will only be made after a book-entry confirmation of the book-entry transfer of old notes into the exchange agent’s account and timely receipt by the exchange agent of an agent’s message and any other documents required by the letter of transmittal. The term “agent’s message” means a message, transmitted by the book-entry transfer facility and received by the exchange agent and forming part of a book-entry confirmation, which states that the book-entry transfer facility has received an express acknowledgment from a participant tendering old notes that are the subject of such book-entry confirmation, that such participant has received and agrees to be bound by the terms of the letter of transmittal and that we may enforce such agreement against such participant.

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Guaranteed delivery procedures

If the procedures for book-entry transfer cannot be completed on a timely basis, a tender may be effected if:

Withdrawal of tenders

Tenders of old notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration date.

For a withdrawal to be effective, a written notice of withdrawal must be received by the exchange agent prior to 5:00 p.m., New York City time, on the expiration date at the address set forth in the letter of transmittal. Any such notice of withdrawal must:

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All questions as to the validity, form, eligibility and time of receipt of such notice will be determined by us, whose determination shall be final and binding on all parties. Any old notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer. Any old notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the tendering holder thereof without cost to such holder, in the case of physically tendered old notes, or credited to an account maintained with the book-entry transfer facility for the old notes promptly after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn old notes may be retendered by following one of the procedures described under “—Procedures for tendering” and “—Book-entry transfer” above at any time on or prior to 5:00 p.m., New York City time, on the expiration date.

Conditions

Notwithstanding any other provision of the exchange offer, we shall not be required to accept for exchange, or to issue new notes in exchange for, any old notes and may terminate or amend the exchange offer if at any time prior to 5:00 p.m., New York City time, on the expiration date, we determine in our reasonable judgment that the exchange offer violates applicable law, any applicable interpretation of the Staff of the SEC or any order of any governmental agency or court of competent jurisdiction.

The foregoing conditions are for our sole benefit and may be asserted by us, regardless of the circumstances giving rise to any such condition, or may be waived by us, in whole or in part, at any time and from time to time in our reasonable discretion. All such conditions must be satisfied or waived by us, as applicable, at or before the expiration of the exchange offer.

In addition, we will not accept for exchange any old notes tendered, and no new notes will be issued in exchange for any such old notes, if at such time any stop order shall be threatened or in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture under the Trust Indenture Act of 1939, as amended. We are required to use our reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible time.

Exchange agent

The Bank of New York has been appointed as exchange agent for the exchange offer. Questions and requests for assistance and requests for additional copies of this prospectus, or of the letter of transmittal, should be directed to the exchange agent as provided in the letter of transmittal.

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Fees and expenses

The expenses of soliciting tenders pursuant to the exchange offer will be borne by us. The principal solicitation for tenders pursuant to the exchange offer is being made by mail; however, additional solicitations may be made by telegraph, telephone, telecopy or in person by our officers and regular employees.

We will not make any payments to brokers, dealers or other persons soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and will reimburse the exchange agent for its reasonable out-of-pocket expenses in connection therewith. We may also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of the prospectus and related documents to the beneficial owners of the old notes, and in handling or forwarding tenders for exchange.

The expenses to be incurred by us in connection with the exchange offer will be paid by us, including fees and expenses of the exchange agent and trustee and accounting, legal, printing and related fees and expenses.

We will pay all transfer taxes, if any, applicable to the exchange of old notes pursuant to the exchange offer. If, however, new notes or old notes for principal amounts not tendered or accepted for exchange are to be registered or issued in the name of any person other than the registered holder of the old notes tendered, or if tendered old notes are registered in the name of any person other than the person signing the letter of transmittal, or if a transfer tax is imposed for any reason other than the exchange of old notes pursuant to the exchange offer, then the amount of any such transfer taxes imposed on the registered holder or any other persons will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the letter of transmittal, the amount of such transfer taxes will be billed directly to such tendering holder.

Consequences of failure to exchange

Holders of old notes who do not exchange their old notes for new notes pursuant to the exchange offer will continue to be subject to the restrictions on transfer of such old notes as set forth in the legend thereon as a consequence of the issuance of the old notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. The old notes may not be offered, sold or otherwise transferred, except in compliance with the registration requirements of the Securities Act, pursuant to an exemption from registration under the Securities Act or in a transaction not subject to the registration requirements of the Securities Act, and in compliance with applicable state securities laws. We do not currently anticipate that we will register the old notes under the Securities Act. To the extent that old notes are tendered and accepted in the exchange offer, the trading market for untendered and tendered but unaccepted old notes could be adversely affected.

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Use of proceeds

We will not receive any proceeds from the exchange offer. In consideration for issuing the new notes, we will receive in exchange, the old notes of like principal amount, the terms of which are identical in all material respects to the new notes. The old notes, surrendered in exchange for new notes, will be retired and cancelled and cannot be reissued. Accordingly, issuance of the new notes will not result in any increase in our indebtedness. We have agreed to bear the expense of the exchange offer. No underwriter is being used in connection with the exchange offer.

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Capitalization

The following table sets forth our capitalization at December 31, 2003. Borrowings available under the Fairfax note are not reflected herein. See “Certain relationships and related transactions— Borrowing from Fairfax.”

This table should be read in conjunction with “Selected historical consolidated financial data,” “Management’s discussion and analysis of financial condition and results of operations” and the consolidated financial statements, and accompanying notes, appearing elsewhere in this prospectus.

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Selected historical consolidated financial data

The table shown below presents selected financial data for the five years ended December 31, 2003. This financial information was prepared in accordance with GAAP. The GAAP statement of operations data for the years ended December 31, 1999, 2000, 2001, 2002 and 2003 and the GAAP balance sheet data at December 31, 1999, 2000, 2001, 2002 and 2003 were derived from Crum & Forster Holdings Corp.’s consolidated financial statements, which have been audited by PricewaterhouseCoopers LLP, independent accountants. The consolidated balance sheets at December 31, 2002 and 2003 and the related consolidated statements of operations, of stockholder’s equity, of comprehensive income and of cash flows for each of the three years in the period ended December 31, 2003, and accompanying notes, appear in this prospectus beginning at page F-1. The combined statutory data has been derived from annual statutory financial statements filed with the domiciliary states of our insurance operating subsidiaries and prepared in accordance with statutory accounting principles, which differ from GAAP.

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The selected financial data presented below should be read in conjunction with “Management’s discussion and analysis of financial condition and results of operations” and the consolidated financial statements, and accompanying notes, included elsewhere in this prospectus.

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Management’s discussion and analysis

The following discussion and analysis should be read in conjunction with our consolidated financial statements, and accompanying notes, included elsewhere in this prospectus. Certain information contained in “Management’s discussion and analysis of financial condition and results of operations” constitutes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements as a result of certain factors, including those set forth under “Risk factors,” “Business— Reserves,” “Business— Investments” and elsewhere in this prospectus.

Overview

We are a national commercial property and casualty insurance company with a focused underwriting strategy, targeting specialty classes of business and overlooked market opportunities. Operating through our home office and regional branch network, we write a broad range of commercial coverages, including property, workers’ compensation, general liability, commercial automobile and surety. We conduct business on a brokerage basis through approximately 1,000 producers located throughout the United States.

The property and casualty industry is cyclical and influenced by many factors, including price, coverage and capacity competition, economic conditions, natural and man-made disasters, interest rates and changes in laws and regulations. Throughout the late 1990s and into 2000, the industry was characterized by excess capacity, which resulted in highly competitive market conditions, as evidenced by declining premium rates, poor underwriting results and declining cash flow. In response to the effects of prolonged soft market conditions, capacity was withdrawn from the market. Commencing in mid-2000, insurers began to achieve significant rate increases and improved terms and conditions. These trends continued through mid-2003. In 2003, however, market capacity expanded, particularly for property risks. In the fourth quarter of 2003, property risks generally were written at or below expiring prices and price increases in casualty lines slowed considerably.

We believe that the key drivers to sustained profitability at our company include, but are not limited to, strict adherence to focused underwriting guidelines, continued cost containment and loss reserve adequacy. To that end, we have implemented many changes in these and other operational areas since 1999. Specific progress includes improving pricing by greater than 10%, on average, in each of the last three years, increasing premiums per policy from $20,000 to $124,000 since 1999, increasing our distribution network through national and wholesale brokers by over 40 percentage points and reducing headcount, payroll and information technology expenses, while increasing annual premiums per employee to greater than $1,090,000 in 2003 from $549,000 in 1999. See “—Operating company management initiatives” for a complete discussion of these operational improvements. We have instituted changes to our claims and actuarial processes to improve the timeliness and accuracy of the recording of our case reserves and the adequacy of our total loss and LAE reserves.

The current environment is not, however, without significant risks and challenges, the most important of which are discussed in this paragraph. As noted above, the property and casualty industry is cyclical and has enjoyed a relatively firm market since 2000. As the market softens, we will likely face more competition in the classes of business we write. In the past this

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Operating company management initiatives

As noted above, we have made significant changes to the management and operations of the Crum & Forster companies since being acquired by Fairfax in August 1998. In the fourth quarter of 1999, we appointed a proven senior management team to our operating companies, led by Bruce Esselborn, which made a number of significant changes designed to increase our profitability and competitive position. These changes included redesigning our underwriting and pricing strategies, expanding our distribution network and implementing a disciplined expense management culture. In addition, in August 2000, we acquired Seneca, a specialty insurer focused on non-commodity lines of business.

Underwriting initiatives

We have taken a number of actions designed to improve underwriting profitability at the Crum & Forster companies since being acquired by Fairfax in 1998. These actions resulted in a significant improvement in our accident year loss and LAE ratio from 115.2% in 1999 to 69.5% in 2003. Accident year refers to the accounting period in which insured events occurred, regardless of when the related claims are actually reported, recorded or paid. We believe that an accident year is the most indicative measure of the underlying profitability of the premiums earned in that period. The actions taken were as follows:

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Distribution initiatives

We have taken a number of actions designed to improve the distribution network at the Crum & Forster companies since being acquired by Fairfax in 1998. We evaluated the profitability and productivity of our producer relationships. Consistent with our strategy to write larger risks which benefit from individual risk underwriting and provide expense benefits, we have grown the portion of our business from national brokers and wholesale brokers. The actions taken were as follows:

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Expense initiatives

We have taken a number of actions designed to decrease expenses at the Crum & Forster companies since being acquired by Fairfax in 1998. We have created a disciplined expense management culture to improve operating efficiencies. We carefully analyzed our cost structure and implemented new strategies to reduce operating expenses, as follows:

Seneca acquisition

In August 2000, we acquired Seneca, which provides specialty coverage such as non-standard property in inner city markets, inland marine, boiler and machinery, bail bonds and environmental liability. Selected statutory data of Seneca is summarized as follows:

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Results of operations

The components of our net income (loss), and certain ratios based thereon, are summarized as follows: