Fitch Affirms Fairfax, Odyssey Re and TIG Ratings

November 21, 2006

Fitch Ratings announced that it has affirmed the ratings of Fairfax Financial Holdings Limited, Odyssey Re Holdings Corp. and its insurance subsidiaries (Odyssey Re), and TIG Holdings Inc. Fitch also has removed all of the ratings from its “Rating Watch Negative” designation, and has assigned them a stable outlook.

Fitch also noted that the “holding company ratings of Crum & Forster Holdings Corp. and the insurance company ratings of Crum & Forster Insurance Group, Northbridge Financial Insurance Group and TIG Insurance Group are not affected by this action.”

Fitch said: “The rating action reflects a reduced level of uncertainty following a series of restatements over the past nine months related to the company’s finite reinsurance contracts and for numerous other accounting errors. While Fitch is concerned about the internal control weaknesses demonstrated by the erroneous accounting, the restatements in total were not significant relative to the company’s capitalization.

“The rating action also reflects Fitch’s favorable view of Fairfax’s recent decision to reduce its ownership interest in Odyssey Re from 78.5 percent to approximately 60 percent. Although this partial sale reduces Fairfax’s future consolidated earnings and upstream dividend capacity, it demonstrates the company’s favorable financial flexibility in generating sources of cash. Furthermore, the reduced Fairfax ownership improves Odyssey Re’s financial profile by lessening the ability of Fairfax to upstream dividends out of its strongest insurance subsidiary.”

Explaining the stable rating outlook, Fitch indicated that its “ratings of Fairfax and its subsidiaries incorporate a certain amount of risk related to the ultimate potential negative effect of issues surrounding the company’s use of finite reinsurance and transactions in Fairfax securities. These issues have led to various subpoenas received by Fairfax, its CEO Prem Watsa, its subsidiaries, its independent auditors and a shareholder, in addition to a class action lawsuit filed by the company’s debt holders.

“However, to the extent that the ongoing investigations by the Securities and Exchange Commission (SEC) and the U.S. Attorney’s office for the Southern District of New York bring about a civil action against the company that considerably weakens the companies’ franchise, reputation, and competitive position, particularly for Odyssey Re as a reinsurer, or results in significant fines and/or penalties levied, the ratings could be negatively impacted.”

The ratings report also notes that “Fairfax reported solid underlying underwriting results through the first nine months of 2006, with all ongoing insurers reporting combined ratios under 100 percent. Fairfax also commuted a $1 billion corporate insurance cover with a Swiss Re subsidiary in early August 2006, which resulted in a pre-tax and after-tax loss of $412.6 million in the third quarter 2006.

“While Fitch has always adjusted the reported results of Fairfax to exclude the finite benefit from the Swiss Re Cover and other similar contracts, the commutation is still viewed favorably as it reduces reinsurance credit risk, lowers interest expense on funds withheld, improves liquidity and provides for greater transparency of results.”

Fitch affirmed most of Fairfax debt ratings at “B+” and Odyssey Re at “BB+.” Fairfax Issuer Default Rating (IDR) is “BB-” and Odyssey Re’s is “BBB-“. Fitch assigned a “BBB+” insurer financial strength rating to Clearwater Insurance Company, and a “BB-” issuer default rating to TIG Holdings. Most of Fairfax other operating entities are rated between “B+” and “BBB-.”

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