F-10

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Table of Contents

As filed with the Securities and Exchange Commission on November 21, 2018

Registration No. 333-            

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM F-10

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Fairfax Financial Holdings Limited
(Exact Name of Registrant as Specified in its Charter)

Canada
(Province or Other Jurisdiction of Incorporation or Organization)

6331
(Primary Standard Industrial Classification Code Number)

Not Applicable
(I.R.S. Employee Identification No.)

Suite 800, 95 Wellington Street West
Toronto, Ontario
M5J 2N7, Canada
Telephone: (416) 367-4941
(Address, including postal code, and telephone number, including area code, of Registrant's principal executive offices)

CT Corporation System
111 Eighth Avenue, 13th Floor
New York, NY 10011 U.S.A.
Telephone: (212) 894-8700
(Name, Address (Including Zip Code) and Telephone Number (Including Area Code) of Agent for Service in the United States)

Copies to:
Derek Bulas Fairfax Financial Holdings Limited Suite 800, 95 Wellington Street West Toronto, Ontario M5J 2N7, Canada (416) 367-4941	Mile T. Kurta Torys LLP 1114 Avenue of the Americas New York, New York 10036 (212) 880-6000

Approximate date of commencement of proposed sale of the securities to the public:
as soon as practicable after this registration statement becomes effective.

Province of Ontario, Canada
(Principal Jurisdiction Regulating this Form F-10 Offering)

          It is proposed that this filing shall become effective (check appropriate box):

          A.      o    upon filing with the Commission, pursuant to Rule 467(a) (if in connection with an offering being made contemporaneously in the United States and Canada).

          B.       ý    at some future date (check appropriate box below):

           1.        o    Pursuant to Rule 467(b) on (                        ) at (                        ) (designate a time not sooner than seven calendar days after filing).

           2.        o    Pursuant to Rule 467(b) on (                        ) at (                        ) (designate a time seven calendar days or sooner after filing) because the securities regulatory authority in the review jurisdiction has issued a receipt or notification of clearance on (                        ).

           3.        ý    Pursuant to Rule 467(b) as soon as practicable after notification of the Commission by the registrant or the Canadian securities regulatory authority of the review jurisdiction that a receipt or notification of clearance has been issued with respect hereto.

           4.        o    After the filing of the next amendment to this form (if preliminary material is being filed).

          If any of the securities being registered on this Form F-10 are to be offered on a delayed or continuous basis pursuant to the home jurisdiction's shelf prospectus offering procedures, check the following box.    o

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Amount to be Registered	Proposed Maximum Offering Price Per Unit(1)	Proposed Maximum Aggregate Offering Price(1)	Amount of Registration Fee(1)
4.850% Senior Notes due 2028 of Fairfax Financial Holdings Limited.	US$600,000,000	N/A	US$600,000,000	US$72,720.00

(1)

The notes being registered are offered (i) in exchange for 4.850% Senior Notes due 2028 previously sold in a transaction exempt from registration under the Securities Act of 1933, as amended, and (ii) upon certain resales of the notes by broker-dealers. The registration fee has been computed based on the face value of the notes solely for the purpose of calculating the amount of the registration fee, pursuant to Rule 457 under the Securities Act of 1933, as amended.

          The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registration statement shall become effective as provided in Rule 467 under the Securities Act of 1933 or on such date as the Commission, acting pursuant to Section 8(a) of the Act, may determine.

PART I
INFORMATION REQUIRED TO BE DELIVERED TO OFFEREES OR PURCHASERS

A copy of this preliminary short form prospectus has been filed with the securities regulatory authorities in the province of Ontario, and with the U.S. Securities and Exchange Commission pursuant to an effective U.S. registration statement, but has not yet become final for the purpose of the sale of securities. Information contained in this preliminary short form prospectus may not be complete and may have to be amended. The securities may not be sold until a receipt for the short form prospectus is obtained from the securities regulatory authorities and the registration statement becomes effective.

No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise.

Information has been incorporated by reference in this prospectus from documents filed with securities commissions or similar authorities in Canada and filed with, or furnished to, the U.S. Securities and Exchange Commission. Copies of the documents incorporated herein by reference may be obtained on request without charge from the office of our Corporate Secretary at Suite 800, 95 Wellington Street West, Toronto, Ontario, Canada, M5J 2N7 (telephone: (416) 367-4941), and are also available electronically at www.sedar.com and at www.sec.gov.

PRELIMINARY SHORT FORM PROSPECTUS

New Issue November 21, 2018

Fairfax Financial Holdings Limited

Exchange Offer for US$600,000,000 of its
4.850% Senior Notes due 2028

The Company

•

Fairfax Financial Holdings Limited (the "Company") is a holding company which, through its subsidiaries, is principally engaged in property and casualty insurance and reinsurance and investment management. The Company and its subsidiaries ("Fairfax", "we", "our", "us") operate through a decentralized operating structure, with autonomous management teams applying a focused underwriting strategy to our markets. We seek to differentiate ourselves by combining disciplined underwriting with the investment of our assets on a total return basis, which we believe provides above-average returns over the long-term. We provide a full range of property and casualty products, maintaining a diversified portfolio of risks across classes of business, geographic regions, and types of insureds. We have been under current management since September 1985. Our head and registered office is located at Suite 800, 95 Wellington Street West, Toronto, Ontario, M5J 2N7, Canada. Our telephone number is (416) 367-4941.

The Exchange Offer

•

If all the conditions of the exchange offer (the "Exchange Offer") are satisfied, the Company will exchange up to US$600,000,000 aggregate principal amount of its 4.850% Senior Notes due 2028 issued on April 17, 2018 (the "Initial Notes") that are validly tendered and not validly withdrawn for an equal principal amount of 4.850% Senior Notes due 2028 (the "Exchange Notes") that have been registered under the United States Securities Act of 1933, as amended (the "Securities Act").

•

You may withdraw your tender of Initial Notes at any time before the expiration of the Exchange Offer.

•

The Exchange Offer will expire at 5:00 p.m., New York City time, on     •    , 2019, unless the Company extends the Exchange Offer, in which case, the Exchange Offer will expire at 5:00 p.m., New York City time on the date to which the Exchange Offer is extended (the "Expiration Date").

The Exchange Notes

•

The terms of the Exchange Notes to be issued in the Exchange Offer are substantially identical to the Initial Notes except that, unlike the Initial Notes, the Exchange Notes will be freely tradable in the United States by persons not affiliated with us, will not bear legends restricting their transfer and will not contain the registration rights and additional interest provisions of the Initial Notes.

•

The Exchange Notes will be issued in United States dollars.

•

The Exchange Notes will be issued in minimum denominations of US$2,000 principal amount and integral multiples of US$1,000 in excess thereof.

•

There is no market through which the Exchange Notes may be sold and purchasers may not be able to resell the Exchange Notes issued pursuant to the Exchange Offer. This may affect the pricing of the Exchange Notes in the secondary market, the transparency and availability of trading prices, the liquidity of the Exchange Notes, and the extent of regulation affecting the Company. See "Risk Factors" commencing on page 8.

Before participating in the Exchange Offer, please carefully read this short form prospectus, including the section entitled "Risk Factors" commencing on page 8.

For a more detailed description of the Exchange Notes, please refer to the section in this short form prospectus entitled "Description of the Notes" commencing on page 55.

This offering of the Exchange Notes is made by the Company, which is a foreign issuer in the United States and is permitted, under a multijurisdictional disclosure system adopted by the United States and Canada, to prepare this short form prospectus in accordance with Canadian disclosure requirements. Prospective investors should be aware that such requirements are different from those in the United States. The financial statements incorporated herein by reference have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). Thus, such financial statements may not be comparable to financial statements of United States companies.

Prospective investors should be aware that owning the Exchange Notes may subject you to tax consequences both in the United States and in Canada. This short form prospectus may not describe these tax consequences fully and such consequences for investors who are resident in, or citizens of, the United States may not be described fully herein. You should read the tax discussion in this short form prospectus. You should consult your own counsel, accountant or other advisors for legal, tax, business financial and related advice regarding the Exchange Offer.

The enforcement by investors of civil liabilities under U.S. federal or state securities laws or other laws of the United States may be affected adversely by the fact that the Company is formed outside the United States, that most of the Company's directors and officers, as well as certain of the experts named in this short form prospectus, reside outside of the United States, and that many of the assets of the Company and the assets of such persons are located outside the United States.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR ANY CANADIAN SECURITIES REGULATORY AUTHORITY, NOR HAS THE SEC OR ANY CANADIAN SECURITIES REGULATORY AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS SHORT FORM PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE.

Prospective investors should be aware that, during the period of the Exchange Offer, the Company or its affiliates, directly or indirectly, may bid for or make purchases of the securities to be distributed or to be exchanged, or certain related securities, as permitted by applicable laws or regulations of Canada or its provinces or territories.

No underwriter has been involved in the preparation of this short form prospectus or performed any review of the contents of this short form prospectus.

Each broker-dealer in the United States that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale or transfer of such Exchange Notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This short form prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales or transfers of Exchange Notes received in exchange for Initial Notes where such Initial Notes were acquired by such broker-dealer as a result of market-making or other trading activities. The Company has agreed that it will make this short form prospectus available to any broker-dealer for use in connection with any such resale or transfer for a period that ends the earlier of (i) 180 days after the date on which the registration statement that includes this short form prospectus is declared effective by the SEC, and (ii) the date on which participating broker-dealers are no longer required to deliver a prospectus in connection with market-making or other trading activities. See "Plan of Distribution".

Table of Contents

	Page
ABOUT THIS PROSPECTUS		iv
PRESENTATION OF FINANCIAL INFORMATION		v
DOCUMENTS INCORPORATED BY REFERENCE AND WHERE YOU CAN FIND MORE INFORMATION		vi
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS		viii
FORWARD-LOOKING INFORMATION		ix
EXCHANGE RATE DATA		xi
SUMMARY TERMS OF THE EXCHANGE OFFER AND THE EXCHANGE NOTES		1
DESCRIPTION OF THE BUSINESS		5
RISK FACTORS		8
USE OF PROCEEDS		27
CONSOLIDATED CAPITALIZATION		28
EARNINGS COVERAGE RATIOS		29
DESCRIPTION OF MATERIAL INDEBTEDNESS AND OTHER COMMITMENTS		31
THE EXCHANGE OFFER		32
INSURANCE REGULATORY MATTERS		40
DESCRIPTION OF THE NOTES		55
PRIOR SALES		64
CERTAIN ERISA CONSIDERATIONS		65
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS		67
PLAN OF DISTRIBUTION		68
LEGAL MATTERS		69
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS		70
AGENT FOR SERVICE OF PROCESS		71
DOCUMENTS FILED AS PART OF THE REGISTRATION STATEMENT		72
CERTIFICATE OF THE COMPANY		C-1

iii

ABOUT THIS PROSPECTUS

        You should rely only on the information contained in or incorporated by reference in this short form prospectus. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. You should not assume that the information provided by this short form prospectus is accurate as of any date other than the date on the front of this short form prospectus. Our business, financial condition, results of operations and prospects may have changed since the date on the front of this short form prospectus. The Exchange Notes are being offered only in jurisdictions in which offers and sales are permitted.

iv

PRESENTATION OF FINANCIAL INFORMATION

        As the majority of our operations are in the United States or conducted in U.S. dollars, we report our consolidated financial statements in U.S. dollars in order to provide more meaningful information to users of our financial statements. In this short form prospectus except where otherwise indicated, all dollar amounts are expressed in U.S. dollars, references to "$", "US$" and "dollars" are to U.S. dollars and references to "Cdn$" are to Canadian dollars.

We have prepared our audited consolidated financial statements as at and for the years ended December 31, 2017 and 2016 in accordance with IFRS as issued by the IASB. We have prepared our unaudited interim consolidated financial statements as at September 30, 2018 and for the three and nine months ended September 30, 2018 and 2017 in accordance with IFRS as issued by the IASB applicable to the preparation of interim financial statements including IAS 34, Interim Financial Reporting.

v

DOCUMENTS INCORPORATED BY REFERENCE AND WHERE YOU CAN FIND MORE INFORMATION

        The following documents filed by us with the securities commission or similar authority in each of the provinces and territories of Canada are specifically incorporated by reference in this short form prospectus:

(a)

our annual information form for the year ended December 31, 2017, dated March 9, 2018;



(b)

our audited consolidated financial statements and the notes thereto, including consolidated balance sheets as at December 31, 2017 and 2016 and consolidated statements of earnings, comprehensive income, changes in equity and cash flows for each of the two years in the period ended December 31, 2017, and management's report on internal control over financial reporting set out on page 28 of our 2017 Annual Report, together with the report of our independent registered public accounting firm on these consolidated financial statements and on the effectiveness of internal control over financial reporting as of December 31, 2017;



(c)

management's discussion and analysis of financial condition and results of operations for the annual consolidated financial statements as at and for the periods referred to in paragraph (b);



(d)

our management proxy circular dated March 9, 2018 in connection with the annual meeting of shareholders held on April 26, 2018;



(e)

our unaudited interim consolidated financial statements and the notes thereto, including the consolidated balance sheets as at September 30, 2018 and December 31, 2017, the consolidated statements of earnings, comprehensive income and cash flows for the three and nine months ended September 30, 2018 and 2017 and the consolidated statements of changes in equity for the nine months ended September 30, 2018 and 2017;



(f)

management's discussion and analysis of financial condition and results of operations for the unaudited interim consolidated financial statements as at and for the periods referred to in paragraph (e); and



(g)

our business acquisition report dated August 2, 2017 in respect of the acquisition of Allied World (as defined herein) (the "Allied World BAR").

        Any documents of the types referred to in paragraphs (a) to (g) above (excluding confidential material change reports) filed by us with the securities regulatory authorities in Canada after the date of this short form prospectus and prior to the termination of this distribution shall be deemed to be incorporated by reference herein.

Any statement contained in a document incorporated or deemed to be incorporated by reference in this short form prospectus shall be deemed to be modified or superseded for the purposes of this short form prospectus to the extent that a statement contained in this short form prospectus, or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein, modifies or supersedes that statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document that it modifies or supersedes. The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this short form prospectus.

Information has been incorporated by reference in this short form prospectus from documents filed with securities commissions or similar authorities in Canada and the United States. Copies of the documents incorporated by reference herein and the Indenture may be obtained without charge by writing to the Company at Suite 800, 95 Wellington Street West, Toronto, Ontario, M5J 2N7. Attention: Corporate Secretary. Our telephone number at that address is (416) 367-4941.

        The Company has filed a registration statement on Form F-10 with the SEC regarding the Exchange Notes, which includes this short form prospectus as part of such registration statement. For further information about us and the Exchange Notes, you should refer to the registration statement and its exhibits. This short form

vi

prospectus summarizes material provisions of agreements and other documents to which we refer you. Copies of these agreements and documents have been included as exhibits to the registration statement and you are encouraged to read these in their entirety.

        The Company is currently subject to the periodic reporting and other informational requirements of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and in accordance therewith files reports and other information with the SEC. However, the Company is a "foreign private issuer" as defined in Rule 405 of the Securities Act and therefore is not required to comply with Exchange Act provisions regarding the furnishing and content of proxy statements, and its officers and directors are exempt from the reporting and short swing profit recovery provisions contained in Section 16 of the Exchange Act. Additionally, under a multijurisdictional disclosure system adopted by the United States and Canada, public reporting documents and other information (including financial information) may be prepared in accordance with the disclosure requirements of the provincial and territorial securities regulatory authorities of Canada, which differ from those in the United States.

        The registration statement (including the attached exhibits) and any other statements and information the Company files with the SEC will be available for inspection at the public reference room at the SEC's office located at 100 F Street, N.E., Washington, D.C. 20549. Copies may also be obtained by mail, upon payment of the SEC's customary charges, by writing to its principal office at 100 F Street, N.E., Washington, D.C. 20549. Information can also be obtained by calling the SEC at 1-800-732-0330. The SEC also maintains an Internet website that contains reports and other information about issuers who file reports with the SEC. The address of that website is www.sec.gov.

        The Company also files information, such as periodic reports and financial information, with the Canadian Securities Administrators, which may be accessed at www.sedar.com.

vii

ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS

        The Company is a corporation organized under the laws of Canada and some of its assets are located in, and most of its directors and officers are residents of, Canada. As a result, it may be difficult for investors outside of Canada to effect service of process outside of Canada upon the Company's directors or officers, or to realize outside of Canada upon judgments of non-Canadian courts predicated upon civil liability of such directors or officers under non-Canadian securities laws. See "Agent for Service of Process".

        We have been advised by Torys LLP, counsel to the Company, that a monetary judgment of a U.S. court predicated solely upon civil liability provisions of U.S. federal securities laws would likely be enforceable in Canada if the U.S. court in which judgment was obtained had a basis for jurisdiction that was recognized by a Canadian court for such purposes. We have also been advised by our counsel that it is less certain that an original action could be commenced in Canada on the basis of liability predicated solely upon such laws.

        The Company has irrevocably appointed CT Corporation System, 111 Eighth Avenue, New York, New York 10011, as its authorized agent for service of process in any legal action or proceeding arising out of or relating to the Indenture (as defined below) and the Exchange Notes for actions brought under United States federal or state securities laws or for actions brought by either trustee or for any actions arising out of or related to the Indenture or the Exchange Notes in any New York Court, and has irrevocably submitted to the jurisdiction of the New York Courts for such purposes.

viii

FORWARD-LOOKING INFORMATION

        This short form prospectus contains "forward-looking statements" and "forward-looking information" (collectively, "forward-looking information") within the meaning of applicable Canadian and United States securities legislation. Any statements made by us or on our behalf may include forward-looking information that reflect our current views with respect to future events and financial performance. The words "believe," "anticipate," "project," "expect," "plan," "intend," "predict," "estimate," "will likely result," "will seek to" or "will continue" and similar expressions identify forward-looking information. This forward-looking information relates to, among other things, our plans and objectives for future operations and underwriting profits. We caution readers not to place undue reliance on this forward-looking information, which speak only as of their dates. We are under no obligation to update or alter such forward-looking information as a result of new information, future events or otherwise, except as may be required by applicable securities laws. This forward-looking information is subject to known and unknown risks, uncertainties and other factors that could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. These uncertainties and other factors, which we describe in more detail elsewhere in this short form prospectus, or in documents incorporated by reference herein, include, but are not limited to:

•

our ability to refinance and/or repay certain of our outstanding debt or other corporate obligations on terms acceptable to us;

•

a reduction in net earnings if our loss reserves are insufficient;

•

underwriting losses on the risks we insure that are higher than expected;

•

the occurrence of catastrophic events with a frequency or severity exceeding our estimates;

•

changes in market variables, including interest rates, foreign exchange rates, equity prices and credit spreads, which could negatively affect our investment portfolio;

•

the cycles of the insurance market and general economic conditions, which can substantially influence our and our competitors' premium rates and capacity to write new business;

•

insufficient reserves for asbestos, environmental and other latent claims;

•

exposure to credit risk in the event our reinsurers fail to make payments to us under our reinsurance arrangements;

•

exposure to credit risk in the event our insureds, insurance producers or reinsurance intermediaries fail to remit premiums that are owed to us or failure by our insureds to reimburse us for deductibles that are paid by us on their behalf;

•

our inability to maintain our long term debt ratings, the inability of our subsidiaries to maintain financial or claims paying ability ratings and the impact of a downgrade of such ratings on derivative transactions that we and our subsidiaries have entered into;

•

risks associated with implementing our business strategies;

•

the timing of claims payments being sooner or the receipt of reinsurance recoverables being later than anticipated by us;

•

risks associated with any use we may make of derivative instruments;

•

the failure of any hedging methods we may employ to achieve their desired risk management objective;

•

a decrease in the level of demand for insurance or reinsurance products, or increased competition in the insurance industry;

•

the impact of emerging claim and coverage issues or the failure of any of the loss limitation methods we employ;

•

our inability to access cash of our subsidiaries;

ix

•

our inability to obtain required levels of capital on favourable terms, if at all;

•

the loss of key employees;

•

our inability to obtain reinsurance coverage in sufficient amounts, at reasonable prices or on terms that adequately protect us;

•

the passage of legislation subjecting our businesses to additional supervision or regulation, including additional tax regulation, in the United States, Canada or other jurisdictions in which we operate;

•

risks associated with government investigations of, and litigation and negative publicity related to, insurance industry practice or any other conduct;

•

risks associated with political and other developments in foreign jurisdictions in which we operate;

•

risks associated with legal or regulatory proceedings or significant litigation;

•

failures or security breaches of our computer and data processing systems;

•

disruptions of our information technology systems;

•

the influence exercisable by our significant shareholder;

•

adverse fluctuations in foreign currency exchange rates;

•

our dependence on independent brokers over whom we exercise little control;

•

an impairment in the carrying value of our goodwill and indefinite-lived intangible assets;

•

our failure to realize deferred income tax assets;

•

technological or other change which adversely impacts demand, or the premiums payable, for the insurance coverages we offer; and

•

assessments and shared market mechanisms which may adversely affect our insurance subsidiaries.

        See the "Risk Factors" section of this short form prospectus and the section entitled "Issues and Risks" on pages 189 to 199 of our 2017 Annual Report for a further discussion of these risks and uncertainties.

        Should one or more risk, uncertainty, contingency or other factor materialize or should any factor or assumption prove incorrect, actual results could vary materially from those expressed or implied in the forward-looking information. Accordingly, you should not place undue reliance on forward-looking information. We do not assume any obligation to update or revise any forward-looking information after the date of this short form prospectus or to explain any material difference between subsequent actual events and any forward-looking information, except as required by applicable law.

x

EXCHANGE RATE DATA

        The following table sets forth, for each period indicated, the low and high exchange rates for Canadian dollars expressed in United States dollars, the exchange rate at the end of such period and the average of such exchange rates for each day during such period, based on the rate of exchange as reported by the Bank of Canada for the conversion of Canadian dollars into United States dollars:

	Year Ended December 31,								Nine Months Ended September 30,
	2014		2015		2016		2017		2018		2017
Low		0.8589		0.7148		0.6854		0.7276		0.7513		0.7276
High		0.9422		0.8527		0.7972		0.8245		0.8138		0.8245
Period End		0.8620		0.7225		0.7448		0.7971		0.7725		0.8013
Average		0.9058		0.7833		0.7555		0.7708		0.7769		0.7657

        On November 20, 2018, the buying rate (as reported by the Bank of Canada) was Cdn$1.00 = US$0.7542

xi

SUMMARY TERMS OF THE EXCHANGE OFFER AND THE EXCHANGE NOTES

        We are able to incorporate by reference information into this short form prospectus, which means we can disclose important information to you in documents outside this short form prospectus. This summary is qualified in its entirety by and should be read in conjunction with the detailed information and financial statements incorporated by reference into this short form prospectus. This summary and the "Description of the Business" section that follows highlight selected information contained elsewhere in, or incorporated by reference into, this short form prospectus. You should read the entire short form prospectus and the information incorporated herein closely.

        The Company is offering to exchange up to US$600,000,000 aggregate principal amount of Initial Notes for an equal principal amount of Exchange Notes. In order to exchange your Initial Notes, you must validly tender them, as instructed herein and in the letter of transmittal. The Company will exchange all outstanding Initial Notes that are validly tendered and not validly withdrawn. The Company will issue the Exchange Notes as promptly as practicable after the expiration of the Exchange Offer.

Exchange Offer:	The Company will exchange your Initial Notes for an equal aggregate principal amount of Exchange Notes.
Resale of Exchange Notes:	Based on an interpretation by the staff of the SEC set forth in no-action letters issued to third parties, you may offer the Exchange Notes for resale, resell and otherwise transfer them without compliance with the registration or prospectus delivery provisions of the Securities Act if:
	• you are acquiring the Exchange Notes in the ordinary course of your business;
	• you are not participating, do not intend to participate and have no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes issued to you; and
	• you are not an affiliate, under Rule 405 of the Securities Act, of the Company.
	Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The letter of transmittal also includes an acknowledgment that each person participating in the Exchange Offer does not intend to engage in a distribution of the Exchange Notes. In addition, the letter of transmittal includes an acknowledgment for each person that is a broker-dealer in connection with resales of Exchange Notes received in exchange for Initial Notes where such Initial Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities that such broker-dealer will satisfy any prospectus delivery requirements in connection with any resale of Exchange Notes received pursuant to the Exchange Offer. This short form prospectus, as it may be amended or supplemented from time to time, may be used by such broker-dealers for such prospectus delivery requirements. We have agreed that, for a period of 180 days after the Expiration Date (as defined herein), we will make this short form prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution."

1

	Any holder of Initial Notes who is our affiliate, does not acquire Exchange Notes in the ordinary course of its business, or tenders its Initial Notes in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of Exchange Notes, cannot rely on the position of the staff of the SEC enunciated in Morgan Stanley & Co. Incorporated (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in Shearman & Sterling (available July 2, 1993), or similar no-action letters and, in the absence of an exemption therefrom, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the Exchange Notes in the United States.
	You should read the discussion under the heading "Exchange Offer" for further information regarding the Exchange Offer and resale of the Exchange Notes.
Registration Rights Agreement:	The Company has undertaken this Exchange Offer pursuant to the terms of a registration rights agreement entered into with the initial purchasers of the Initial Notes (the "Registration Rights Agreement"). See "The Exchange Offer".
Consequences of Failure to Exchange Initial Notes:	You will continue to hold the Initial Notes that remain subject to their existing transfer restrictions if:
	• you do not tender your Initial Notes; or
	• you tender your Initial Notes and they are not accepted for exchange.
	Subject to certain limited exceptions, the Company will have no obligation to register the Initial Notes after it consummates the Exchange Offer. See "The Exchange Offer — Terms of the Exchange Offer — Consequences of Failure to Exchange" and "The Exchange Offer — Terms of the Exchange Offer — Acceptance of Initial Notes for Exchange; Delivery of Exchange Notes".
Expiration Date:	The Expiration Date for the Exchange Offer is 5:00 p.m., New York City time, on •, 2019, unless the Company extends it, in which case "Expiration Date" means 5:00 p.m. on the date to which the Exchange Offer is extended.
Conditions to the Exchange Offer:	The Exchange Offer is subject to certain customary conditions, which the Company may waive. See "The Exchange Offer — Terms of the Exchange Offer — Conditions".
Procedures for Tendering Initial Notes:	If you wish to accept the Exchange Offer, you must submit the required documentation and effect a tender of Initial Notes pursuant to the procedures for book-entry transfer (or other applicable procedures), all in accordance with the instructions described in this short form prospectus and in the relevant letter of transmittal. See "The Exchange Offer — Terms of the Exchange Offer — Procedures for Tendering", "The Exchange Offer — Terms of the Exchange Offer — Book Entry Transfer", "The Exchange Offer — Terms of the Exchange Offer — Exchanging Book-Entry Notes" and "The Exchange Offer — Terms of the Exchange Offer — Guaranteed Delivery Procedures".
Guaranteed Delivery Procedures:	If you wish to tender your Initial Notes, but cannot properly do so prior to the Expiration Date, you may tender your Initial Notes in accordance with the guaranteed delivery procedures described in "The Exchange Offer — Terms of the Exchange Offer — Guaranteed Delivery Procedures".

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Withdrawal Rights:	Tenders of Initial Notes may be withdrawn at any time prior to the Expiration Date. To withdraw a tender of Initial Notes, a written or facsimile transmission notice of withdrawal must be received by the exchange agent at its address set forth in the letter of transmittal prior to the Expiration Date.
Acceptance of Initial Notes and Delivery of Exchange Notes:	Subject to certain conditions, any and all Initial Notes that are validly tendered in the Exchange Offer prior to the Expiration Date will be accepted for exchange. The Exchange Notes issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. See "The Exchange Offer — Terms of the Exchange Offer — Acceptance of Initial Notes for Exchange; Delivery of Exchange Notes".
U.S. Federal Income Tax Considerations:	The exchange of the Initial Notes for the Exchange Notes will not constitute a taxable exchange for U.S. federal income tax purposes. See "Certain U.S. Federal Income Tax Considerations".
Use of Proceeds:	The Company will not receive any proceeds from the issuance of the Exchange Notes. The Company is offering the Exchange Notes solely to satisfy its obligations under the Registration Rights Agreement. Initial Notes that are validly tendered (and not validly withdrawn) and exchanged will be retired and cancelled and cannot be reissued. See "Use of Proceeds".
Exchange Agent:	The Bank of New York Mellon is serving as the exchange agent.
Summary of Terms of the Exchange Notes:	The terms of the Exchange Notes are substantially identical to the terms of the Initial Notes except that the Exchange Notes:
	• will be registered under the Securities Act, and therefore will not contain restrictions on transfer;
	• will not contain provisions relating to additional interest;
	• will bear a different CUSIP number from the Initial Notes;
	• will not entitle their holders to registration rights; and
	• will carry the same features as, and be fungible with, the Initial Notes that have been exchanged.
Issuer:	Fairfax Financial Holdings Limited
Exchange Notes Offered:	Up to US$600,000,000 aggregate principal amount of 4.850% Senior Notes due 2028.
Maturity Date:	April 17, 2028.
Interest:	4.850%. Interest is payable in semi-annual installments in arrears on each April 17 and October 17, commencing April 17, 2019.
Ranking:	The Exchange Notes will be direct, unsecured obligations of the Company. The Exchange Notes will rank equally and ratably with all of the Company's unsecured indebtedness. The Exchange Notes will be effectively subordinated to any secured indebtedness of the Company to the extent of the assets securing such indebtedness. The Exchange Notes will also be structurally subordinated to all obligations of the Company's subsidiaries. See "Risk Factors — Risk Factors Relating to the Exchange Notes".

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Payment of Additional Amounts:	Any payments made by the Company with respect to the Exchange Notes will be made without withholding or deduction for Canadian taxes unless required by law. Subject to certain exclusions, if the Company is required by law to withhold or deduct for Canadian taxes with respect to a payment to the holders of the Exchange Notes, the Company will pay the additional amount necessary so that the net amount received by the holders of the Exchange Notes after the withholding or deduction is not less than the amount that they would have received in the absence of the withholding or deduction. See "Description of the Notes — Payment of Additional Amounts".
Optional Redemption:	Prior to January 17, 2028 (the "Par Call Date"), the Company may redeem, in whole at any time or in part from time to time, the Exchange Notes at 100% of their principal amount, plus a "make whole" premium as described under the heading "Description of the Notes — Optional Redemption," together with accrued and unpaid interest, if any, to, but excluding, the date of redemption. On or after the Par Call Date, the Company may redeem, in whole at any time or in part from time to time, the Exchange Notes at 100% of their principal amount together with accrued and unpaid interest, if any, to, the date of redemption.
Redemption for Tax Reasons:	The Company may redeem, in whole, but not in part, the Exchange Notes in the event of certain changes in the tax laws of Canada that could require the Company to pay additional amounts as described under "Description of the Notes — Payment of Additional Amounts." The redemption price would be equal to 100% of the principal amount of the Exchange Notes, together with accrued and unpaid interest on the Exchange Notes to be redeemed to the date of redemption. See "Description of the Notes — Redemption for Tax Reasons".
Restrictive Covenants:	The Indenture governing the Exchange Notes contains covenants that, among other things, limit our ability to:
	• create liens on the capital stock of certain of the Company's subsidiaries; and
	• enter into specific mergers or consolidations or convey, transfer or lease our properties and assets substantially as an entirety.
	See "Description of the Notes — Certain Covenants".
Absence of Public Market for the Exchange Notes:	There is currently no established trading market for the Exchange Notes. The Company does not intend to apply for a listing of the Exchange Notes on any securities exchange or an automated dealer quotation system. Accordingly, there can be no assurance as to the development or liquidity of any market for the Exchange Notes and this may affect the pricing, transparency and availability of trading prices of the Exchange Notes.

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DESCRIPTION OF THE BUSINESS

Unless the context otherwise requires, the terms "Fairfax", "Company", "we", "us" and "our" refer to Fairfax Financial Holdings Limited and its subsidiaries; the term "Allied World" refers to our majority-owned Swiss-based global property, casualty and specialty insurance and reinsurance company, Allied World Assurance Company Holdings, GmbH and its subsidiaries; the term "Brit" refers to our majority-owned specialty insurance and reinsurance company operating in the Lloyd's market, Brit Limited and its subsidiaries; the term "Bryte" refers to our wholly-owned South African property and casualty insurance business, Bryte Insurance Company Limited; the term "Colonnade" refers to our wholly-owned Luxembourg based insurance company, Colonnade Insurance S.A.; the term "Crum & Forster" refers to our wholly-owned U.S. property and casualty insurance business, Crum & Forster Holdings Corp. and its subsidiaries; the term "Fairfax Asia" refers to our property and casualty insurance business conducted through our subsidiaries in Hong Kong, Sri Lanka, Indonesia and Malaysia; the term "Fairfax Brasil" refers to our wholly-owned Brazil property and casualty insurance company, Fairfax Brasil Seguros Corporativos S.A.; the term "Fairfax Latam" refers to our property and casualty insurance business conducted in Argentina, Chile, Colombia and Uruguay; the term "Group Re" refers to our wholly-owned reinsurance business, conducted through certain other subsidiaries; the term "Hamblin Watsa" refers to our wholly-owned investment management subsidiary, Hamblin Watsa Investment Counsel Ltd.; the term "Northbridge" refers to our wholly-owned Canadian property and casualty insurance business, Northbridge Financial Corporation and its subsidiaries; the term "Odyssey Group" refers to our wholly-owned U.S. reinsurance and insurance business, Odyssey Re Holdings Corp. and its subsidiaries; the term "Polish Re" refers to our wholly-owned Polish reinsurance company, Polskie Towarzystwo Reasekuracji Spólka Akcyjna; and the term "Zenith National" refers to our wholly-owned U.S. workers' compensation insurance business, Zenith National Insurance Corp. and its subsidiaries.

        We are a holding company which, through our subsidiaries, is principally engaged in property and casualty insurance and reinsurance and investment management. We are incorporated under the Canada Business Corporations Act. We operate through a decentralized operating structure, with autonomous management teams applying a focused underwriting strategy to our markets. We seek to differentiate ourselves by combining disciplined underwriting with the investment of our assets on a total return basis, which we believe provides above-average returns over the long-term. We provide a full range of property and casualty products, maintaining a diversified portfolio of risks across classes of business, geographic regions, and types of insureds. We have been under current management since September 1985. Our principal executive offices are located at Suite 800, 95 Wellington Street West, Toronto, Ontario, M5J 2N7, Canada. Our telephone number is (416) 367-4941.

        We conduct our business through the following segments, with each of our continuing operations maintaining a strong position in its respective markets.

        Our reinsurance business is conducted through Odyssey Group, Group Re, Brit, Allied World and Polish Re. Odyssey Group is a U.S. based underwriter of a full range of property and casualty reinsurance on a worldwide basis. Group Re primarily constitutes the participation by our wholly-owned subsidiaries CRC Reinsurance Limited and Wentworth Insurance Company Ltd. (both based in Barbados) in the reinsurance of Fairfax's subsidiaries by quota share or through participation in those subsidiaries' third party reinsurance programs on the same terms and pricing as the third party reinsurers. Group Re also writes third party business. Our 88.0% owned subsidiary Brit, based in the United Kingdom, is a market-leading global Lloyd's of London specialty insurer and reinsurer. Allied World, our 67.8% owned subsidiary based in Switzerland, is a global property, casualty and specialty insurance and reinsurance company. Polish Re, based in Warsaw, Poland, writes reinsurance business in the Central and Eastern European regions. We hold a 47.1% interest in Thai Reinsurance Public Company Limited (a provider of reinsurance and insurance services based in Bangkok, Thailand) and a 27.8% interest in Singapore Reinsurance Corporation Limited (a general reinsurance company providing reinsurance coverage in the Asia region).

        Our insurance business is conducted through Northbridge (Canadian insurance), Crum & Forster (U.S. property and casualty insurance), Zenith National (U.S. workers' compensation insurance), Brit (U.S., U.K. and international insurance), Allied World (North American and international insurance), Fairfax Asia (Asian insurance), Fairfax Latam (South American insurance), Bryte (South African insurance), Fairfax Brasil (Brazilian insurance) and Colonnade (Central and Eastern European insurance). Odyssey Group also conducts

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insurance business through its U.S. Insurance and London Market divisions. Northbridge provides commercial and personal lines property and casualty insurance primarily in Canada through a wide range of distribution channels. Crum & Forster provides a full range of commercial property and casualty insurance, which targets specialty classes of business that emphasize strong technical underwriting expertise. Zenith National is primarily engaged in the workers' compensation insurance business in the United States. Odyssey Group provides a range of professional and specialty liability insurance in the United States and internationally through its U.S. Insurance and London Market divisions. Brit is a market-leading global Lloyd's of London specialty insurer. Allied World is a market-leading global property, casualty and specialty insurer. Fairfax Asia is comprised of:

•

our wholly-owned, Hong Kong-based subsidiary, Falcon Insurance, which writes property and casualty insurance in niche markets in Hong Kong;

•

our 85.0% owned, Malaysia-based subsidiary, Pacific Insurance, which writes all classes of general insurance and medical insurance in Malaysia;

•

our 80.0% owned, Jakarta-based subsidiary, PT Asuransi Multi Artha Guna Tbk, an Indonesian general insurance company;

•

our 78.0% owned, Sri Lanka-based subsidiary, Fairfirst Insurance Limited, a Sri Lankan general insurance company;

•

our 41.2% interest in Thailand-based Falcon Insurance PLC, a Thai property and casualty insurance company; and

•

our 35.0% interest in Bank for Investment and Development of Vietnam Insurance Joint Stock Corporation, a Vietnamese property and casualty insurance company.

        Fairfax Latam, based in Miami, Florida, consists of insurance operations acquired in Argentina, Chile, Colombia and Uruguay throughout 2017 and 2018. Bryte, based in South Africa, writes property and casualty insurance in South Africa and Botswana. Fairfax Brasil, based in Brazil, writes commercial property and casualty business, with a primary focus on markets in Brazil. Colonnade, based in Luxembourg, commenced writing business in 2016 in the Central and Eastern regions of Europe and also includes the business and renewal rights of certain insurance operations in Central and Eastern Europe acquired throughout 2017. We also hold a 43.3% interest in Gulf Insurance Company, a Kuwait company with property and casualty operations in the Middle East and North Africa.

        Our runoff business includes our discontinued business that did not meet our underwriting criteria or strategic objectives and selected business previously written by our other subsidiaries that was put under dedicated runoff management. In addition, our runoff segment includes third-party runoff operations that we have acquired, which we believe will provide us with the opportunity to earn attractive returns on our invested capital.

        Our other reporting segment comprises Fairfax India Holdings Corporation ("Fairfax India"), Fairfax Africa Holdings Corporation ("Fairfax Africa"), Recipe Unlimited Corporation ("Recipe"), William Ashley China Corporation ("William Ashley"), Sporting Life Inc. ("Sporting Life"), Golf Town Limited ("Golf Town"), Boat Rocker Media Inc. ("Boat Rocker"), Praktiker Hellas Commercial Societe Anonyme ("Praktiker"), Grivalia Properties Real Estate Investment Company ("Grivalia Properties"), Mosaic Capital Corporation ("Mosaic Capital"), Dexterra Integrated Facilities Management ("Dexterra"), Toys "R" Us (Canada) Ltd. ("Toys "R" Us Canada"), Thomas Cook (India) Limited ("Thomas Cook India"), Sterling Holiday Resorts (India) Limited ("Sterling Resorts"), Pethealth Inc. ("Pethealth"), National Collateral Management Services Limited ("NCML"), Fairchem Speciality Limited ("Fairchem") and Saurashtra Freight Private Limited ("Saurashtra Freight"). Fairfax India invests in public and private equity and debt instruments in India and Indian businesses or other businesses primarily conducted in or dependent on India. Fairfax Africa invests in public and private equity and debt instruments of African businesses or other businesses with customers, suppliers or business primarily conducted in or dependent on Africa. Recipe franchises and/or operates restaurant brands across Canada and in select locations in the United States. William Ashley is a prestige retailer of exclusive tableware and gifts in Canada. Sporting Life is a Canadian retailer of sporting goods and sports apparel. Golf Town is one

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of the largest specialty retailers of golf equipment, consumables, golf apparel and accessories in Canada. Boat Rocker is a global content creator producing and distributing high quality and award winning entertainment for television, film, and digital. Grivalia Properties is a real estate investment company listed on the Athens Stock Exchange that has a large portfolio of commercial properties in Greece and Eastern Europe. Praktiker is one of the largest home improvement and do-it-yourself goods retailers in Greece. Mosaic Capital is a Canadian investment company that owns a portfolio of established mid-sized businesses in various industries. Dexterra is an infrastructure services company that provides asset management and operations solutions to industries and governments. Toys "R" Us Canada is a specialty retailer of toys and baby products in Canada. Thomas Cook India is an integrated travel and travel-related financial services company in India, offering a broad range of services that include foreign exchange, corporate and leisure travel and insurance. Sterling Resorts is engaged in vacation ownership and leisure hospitality and operates a network of resorts in India. Pethealth is headquartered in Canada and provides pet medical insurance, management software and pet-related database management services in North America and the United Kingdom. NCML is a leading private-sector agricultural commodities storage company in India. Fairchem is a specialty chemical manufacturer in India of oleo chemicals used in the paints, inks and adhesives industries, as well as intermediate nutraceutical and health products. Saurashtra Freight operates a container freight station at the Mundra Port in the Indian state of Gujarat. Our economic interests in NCML, Fairchem and Saurashtra Freight are held through Fairfax India.

        Our invested assets are managed by our wholly-owned investment management subsidiary, Hamblin Watsa. Hamblin Watsa has managed our invested assets since September 1985 and emphasizes a conservative investment philosophy, seeking to invest our assets on a total return basis, which includes realized and unrealized gains over the long-term, using a value-oriented approach.

        Our insurance operations primarily use brokers to distribute their business and in some instances will distribute through agents or directly to the customer. They may also conduct business through third parties such as managing general agents where it is cost effective to do so and where we can control the underwriting process to ensure our risk management criteria are met. Our insurance operations have relationships with many different types of brokers including independent retail brokers, wholesale brokers and national brokers depending on the particular jurisdiction. Each of these channels has its own distinct distribution characteristics and customers. Our reinsurance operations are dependent primarily on a limited number of international reinsurance brokers.

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RISK FACTORS

An investment in the Exchange Notes involves risk. You should carefully consider the following risk factors, as well as the information contained in and incorporated by reference into this short form prospectus, including the risks described under "Issues and Risks" on pages 189 to 199 of our 2017 Annual Report, before deciding whether to participate in the Exchange Offer. Any of these risks could materially adversely affect our business, financial condition or results of operations and could materially adversely affect your investment in the Exchange Notes. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition or results of operations.

Risk Factors Relating to Our Business

If our actual claims exceed our claim reserves, our financial condition and results of operations could be adversely affected.

        We maintain reserves to cover our estimated ultimate unpaid liability for losses and loss adjustment expenses with respect to reported and unreported claims incurred as of the end of each accounting period. Our success is dependent upon our ability to accurately assess the risks associated with the businesses that we reinsure or insure. If we fail to accurately assess the risks we assume, we may fail to establish appropriate premium rates and our reserves may be inadequate to cover our losses, which could have a material adverse effect on our financial condition and reduce our net earnings.

        At September 30, 2018, we had gross provision for losses and loss adjustment expenses of US$28.0 billion.

        Reserves do not represent an exact calculation of liability, but instead represent estimates at a given point in time involving actuarial and statistical projections of our expectations of the ultimate settlement and administration costs of claims incurred. Establishing an appropriate level of claim reserves is an inherently uncertain process. We utilize both proprietary and commercially available actuarial models, as well as historical insurance industry loss development patterns, to assist in the establishment of appropriate claim reserves.

        In contrast to casualty losses, which frequently can be determined only through lengthy and unpredictable litigation, property losses tend to be reported promptly and usually are settled within a shorter period of time. Nevertheless, for both casualty and property losses, actual claims and claim expenses ultimately paid may deviate, perhaps substantially, from the reserve estimates reflected in our financial statements. Variables in the reserve estimation process can be affected by both internal and external events, such as changes in claims handling procedures, economic and social inflation, legal trends and legislative changes. Many of these items are not directly quantifiable, particularly on a prospective basis.

        If our claim reserves are determined to be inadequate, we will be required to increase claim reserves with a corresponding reduction in our net earnings in the period in which the deficiency is rectified. It is possible that claims in respect of events that have occurred could exceed our claim reserves and have a material adverse effect on our results of operations in a particular period and/or our financial condition.

        Even though most insurance contracts have policy limits, the nature of property and casualty insurance and reinsurance is such that losses can exceed policy limits for a variety of reasons and could significantly exceed the premiums received on the underlying policies. When this occurs, our financial results are adversely affected.

Unpredictable catastrophic events could reduce our net earnings.

        Our insurance and reinsurance operations expose us to claims arising out of catastrophes. We have experienced, and will in the future experience, catastrophe losses which may materially reduce our profitability or harm our financial condition. Catastrophes can be caused by various events, including natural events such as hurricanes, windstorms, earthquakes, tornadoes, hailstorms, severe winter weather and fires, and unnatural events such as terrorist attacks and riots. 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

8

populated areas. Catastrophes can cause losses in a variety of property and casualty lines, including losses relating to business interruptions occurring in the same geographic area as the catastrophic event or in the other geographic areas. It is possible that a catastrophic event or multiple catastrophic events could have a material adverse effect upon our financial condition, profitability or cash flows.

        Claims resulting from natural or man-made catastrophic events could cause substantial volatility in our financial results for any fiscal quarter or year and could materially reduce our profitability or harm our financial condition. Our ability to write new business could also be affected. We believe that increases in the value and geographic concentration of insured property, higher construction costs due to labor and raw material shortages following a significant catastrophic event, and climate change could increase the severity of claims from catastrophic events in the future.

Our portfolio holdings are subject to fluctuations in the market which could negatively affect their value. If we are unable to realize our investment objectives, our business, financial condition or results of operations may be adversely affected.

        Investment returns are an important part of our overall profitability and our operating results depend in part on the performance of our investment portfolio. We hold bonds and other debt instruments, common stocks, preferred stocks, equity-related securities and derivative securities in our portfolio.

        Accordingly, fluctuations in the fixed income or equity markets could impair our financial condition, profitability or cash flows. We derive our investment income from interest and dividends, together with net gains or losses on investments. The portion derived from net gains or losses on investments generally fluctuates from year to year. For the nine months ended September 30, 2018, net gains on investments accounted for 60.1% of our total investment income (including net gains on investments). For the year ended December 31, 2017, net gains on investments accounted for 73.4% of our total investment income (including net gains on investments). Net gains on investments are typically a less predictable source of investment income than interest and dividends, particularly in the short term.

        The return on our portfolio and the risks associated with our investments are also affected by our asset mix, which can change materially depending on market conditions. Investments in cash or short term investments generally produce a lower return than other investments. The market value of bonds, other debt instruments and preferred stocks fluctuates with changes in interest rates and credit quality, and is exposed to liquidity risks. The market value of common stocks and equity-related securities is exposed to fluctuations in the stock market and to liquidity risk. Equities, equity-related securities and derivative securities are volatile or extremely volatile, with the result that their market value and their liquidity may vary dramatically either up or down in short periods, and their ultimate value will therefore only be known upon their disposition or settlement.

        The uncertainty around the ultimate amount and the timing of our claim payments may force us to liquidate securities, which may cause us to incur losses. If we structure our investments improperly relative to our liabilities, we may be forced to liquidate investments prior to maturity at a significant loss to cover such liabilities. Realized and unrealized investment losses resulting from a decline in value could significantly decrease our net earnings.

        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 our control. General economic conditions, stock market conditions and many other factors can also adversely affect the equities markets and, consequently, the value of the equity securities we own. In addition, defaults by third parties who fail to pay or perform on their obligations could reduce our investment income and net gains on investment or result in investment losses. We may not be able to realize our investment objectives, which could reduce our net earnings significantly and adversely affect our business, financial condition or results of operations.

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The cycles of the insurance and reinsurance industries and general economic conditions may cause fluctuations in our operating results.

        Historically, we have experienced fluctuations in operating results due to competition, frequency of occurrence or severity of catastrophic events, levels of capacity, general economic conditions and other factors. Demand for insurance and reinsurance is influenced significantly by underwriting results of primary insurers and prevailing general economic conditions. Factors such as changes in the level of employment, wages, consumer spending, business investment and government spending, the volatility and strength of the global capital markets and inflation or deflation all affect the business and economic environment and, ultimately, the demand for insurance and reinsurance products, and therefore may affect our net earnings, financial position or cash flows.

        The property and casualty insurance business historically has been characterized by periods of intense price competition due to excess underwriting capacity, as well as periods when shortages of underwriting capacity have permitted attractive premium levels. We expect to continue to experience the effects of this cyclicality, which, during down periods, could significantly reduce the amount of premium we write and could harm our financial condition, profitability or cash flows.

        In the reinsurance industry, the supply of reinsurance is related to prevailing prices and levels of surplus capacity that, in turn, may fluctuate in response to changes in rates of return being realized. It is possible that premium rates or other terms and conditions of trade could vary in the future, that the present level of demand will not continue because insurers, including the larger insurers created by industry consolidation, may require less reinsurance or that the present level of supply of reinsurance could increase as a result of capital provided by recent or future market entrants or by existing reinsurers. If any of these events transpire, the profitability of our reinsurance business could be adversely affected.

Our business could be harmed because of our potential exposure to asbestos, environmental and other latent claims.

        We have established loss reserves for asbestos and environmental and other latent claims. There is a high degree of uncertainty with respect to future exposure from such claims because of: significant issues surrounding the liabilities of the insureds and insurers, including us; risks inherent in major litigation, including more aggressive environmental and asbestos-related litigation against insurers, including us; and diverging legal interpretations and judgments in different jurisdictions. These uncertainties include, among other things:

•

the extent of the insured's liabilities;

•

the extent of coverage under insurance policies;

•

whether or not particular claims are subject to an aggregate limit;

•

whether multiple policies issued to the same insured will be triggered by a particular claim;

•

the number of occurrences involved in particular claims;

•

the potential application of the pollution exclusion;

•

whether particular policies are triggered by particular claims;

•

new theories of insured and insurer liability; and

•

the extent to which courts deter non-meritorious lawsuit filings.

        The majority of claims now being filed and litigated continue to relate to mesothelioma, lung cancer and to a much lesser extent, impaired asbestosis cases. Defense expense is a significant driver of insurers' total cost of asbestos claims, due in large part to the excessive number of defendants named in many of the asbestos suits filed in the United States. Many of the named defendants are ultimately dismissed once plaintiffs conclude after discovery is completed that those defendants have no liability. Most often insurers, including us, incur the costs to defend these defendants and extract them from the litigation.

        Similarly, as a result of various regulatory efforts aimed at environmental remediation, companies in the insurance industry, including us, continue to be involved in litigation involving policy coverage and liability issues with respect to environmental claims. In addition to regulatory pressures, the results of court decisions affecting

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the industry's coverage positions continue to be inconsistent and have expanded coverage beyond its original intent. Accordingly, the ultimate responsibility and liability for environmental remediation costs remain uncertain.

        In addition to asbestos and environmental pollution, we face exposure to other types of mass tort or health hazard claims, including claims related to head trauma, environmental pollution and exposure to potentially harmful products or substances, such as breast implants, pharmaceutical products, chemical products, lead-based pigments, tobacco, hepatitis C, talc and in utero exposure to diethylstilbestrol. Tobacco, although a significant potential risk to the Company, has not presented significant actual exposure to date. Although still a risk due to occasional unfavorable court decisions, lead pigment has had some favorable underlying litigation developments resulting in this hazard presenting less of a risk to us. As a result of its historical underwriting profile and its focus on excess liability coverage for Fortune 500-type entities, our runoff business faces the bulk of these potential exposures within Fairfax. Establishing claim and claim adjustment expense reserves for mass tort claims is subject to uncertainties because of many factors, including expanded theories of liability and disputes concerning medical causation with respect to certain diseases.

        Given the factors described above, it is not presently possible to quantify with a high degree of certainty the ultimate exposure or range of exposure represented by asbestos, environmental and other latent claims and related litigation. We have established reserves that represent our best estimate of ultimate claims and claim adjustment expenses based upon known facts and current law. Our gross asbestos reserves were US$1.2 billion and our asbestos reserves, net of reinsurance but excluding vendor indemnities, were US$0.9 billion at September 30, 2018. However, these claims and related litigation, particularly if current trends continue, could result in liability exceeding these reserves by an amount that could be material to our financial condition, profitability or cash flows in future periods.

We cannot assure you that our reinsurers and certain insureds will pay us on a timely basis or at all.

        Most insurance and reinsurance companies reduce their exposure to any individual claim by reinsuring amounts in excess of their maximum desired retention. Reinsurance is an arrangement in which an insurer, called the cedant, transfers insurance risk to another insurer, called the reinsurer, which accepts the risk in return for a premium payment. 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. At September 30, 2018, we had a total of US$8.0 billion recoverable from reinsurers. We cannot assure you that our reinsurers will pay our reinsurance claims on a timely basis or at all. As well, we bear credit risk with respect to our reinsurers (including retrocessionaires), both with respect to receivables reflected on our balance sheet as well as to contingent liabilities with respect to reinsurance protection on future claims. If reinsurers are unwilling or unable to pay us amounts due under reinsurance contracts, we will incur unexpected losses and our results of operations, financial position and cash flows will be adversely affected.

We are exposed to credit risk in the event our insureds, insurance producers or reinsurance intermediaries fail to remit premiums that are owed to us or failure by our insureds to reimburse us for deductibles that are paid by us on their behalf.

        We write certain insurance policies, such as 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 of 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 earnings and cash flow, and the ability of our insurance and reinsurance subsidiaries to pay dividends or make other distributions to us.

        In accordance with industry practice, our customers often pay the premiums for their policies to brokers for payment over to us. These premiums are considered paid when received by the broker and, thereafter, the customer is no longer liable to us for those amounts, whether or not we have actually received the premiums

11

from the broker. Consequently, we assume a degree of credit risk associated with our reliance on brokers in connection with the settlement of insurance balances.

        Further, as is customary in the reinsurance industry, our reinsurance companies frequently pay amounts owing in respect of claims under their policies to reinsurance brokers, for payment over to the ceding insurers. In the event that a broker fails to make such a payment, depending on the jurisdiction, our reinsurance companies might remain liable to the ceding insurer for the deficiency. Conversely, in certain jurisdictions, when the ceding insurer pays premiums for such policies to reinsurance brokers for payment over to our reinsurance companies, such premiums will be deemed to have been paid and the ceding insurer will no longer be liable for those amounts, whether or not our reinsurance companies have actually received such premiums. Consequently, in connection with the settlement of reinsurance balances, we assume a degree of credit risk associated with brokers around the world.

If our insurance and reinsurance subsidiaries are unable to maintain financial strength ratings, it may be more difficult for them to renew policies, retain business or write new business and a downgrade of our credit rating may affect the cost and availability of financing.

        Third-party rating agencies assess and rate the claims-paying ability of reinsurers and insurers based upon the criteria of such rating agencies. Periodically the rating agencies evaluate our insurance companies to confirm that they continue to meet the criteria of the ratings previously assigned to them. The claims-paying ability ratings assigned by rating agencies to reinsurance or insurance companies represent independent opinions of financial strength and ability to meet policyholder obligations, and are not directed toward the protection of investors. These claims-paying ability ratings are not ratings of securities or recommendations to buy, hold or sell any security and are not applicable to the securities offered by this short form prospectus.

        A.M. Best has assigned an "A" rating (the third highest of fifteen ratings) to each of Odyssey Group, Northbridge, Zenith National, Crum & Forster and Allied World. In addition, Brit, through its wholly aligned Lloyd's Syndicate, benefits from the Lloyd's "A" rating from A.M. Best. Financial strength ratings are used by insurers and reinsurance and insurance intermediaries as an important means of assessing the financial strength and quality of insurers and reinsurers. A downgrade in these ratings could lead to a significant reduction in the number of insurance policies our insurance subsidiaries write and could cause early termination of contracts written by our reinsurance subsidiaries or a requirement for them to post collateral at the direction of their counterparties. As well, if our current or potential customers were to raise their minimum required financial strength or claims paying ratings above the ratings held by us or our insurance and reinsurance subsidiaries, or if they were to materially increase their collateral requirements, the demand for our products could be reduced, our premiums could decline, and our profitability could be adversely affected.

        The ratings of our insurance and reinsurance subsidiaries by these agencies may be based on a variety of factors, some of which are outside of our control, including, but not limited to, the financial condition of us and our subsidiaries and affiliates, the financial condition or actions of parties from which our insurance subsidiaries have obtained reinsurance, and factors relating to the sectors in which such persons conduct business, and the statutory surplus of our insurance and reinsurance subsidiaries, which is adversely affected by underwriting losses and dividends paid by them. A downgrade of any of the debt or other ratings of Fairfax, or of any of Fairfax's subsidiaries or affiliates, or a deterioration in the financial markets' view of any of these entities, could have a negative impact on the claims-paying ability ratings of our insurance and reinsurance subsidiaries.

        A downgrade in our long-term debt ratings by the major credit rating agencies could require us or our subsidiaries to accelerate our or their cash settlement obligations for certain derivative transactions to which we or they are a party, and could result in the termination of certain other derivative transactions. In addition, a downgrade of our credit rating may affect the cost and availability of financing. Ratings are subject to periodic review at the discretion of each respective rating agency and may be revised downward or revoked at their sole discretion. Rating agencies may also increase their scrutiny of rated companies, revise their rating standards or take other action.

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We may not be successful in achieving our strategic objectives.

        We may periodically and opportunistically acquire other insurance and reinsurance companies or execute other strategic initiatives developed by management. Although we undertake due diligence prior to the completion of an acquisition, it is possible that unanticipated factors could arise and there is no assurance that the anticipated financial or strategic objectives following an integration effort or the implementation of a strategic initiative will be achieved, which could adversely affect our financial condition, profitability or cash flows.

        We may periodically explore opportunities to make strategic investments in all or part of certain businesses or companies. Acquisitions may involve a number of special risks, including failure to retain key personnel, unanticipated events or circumstances and legal liabilities, some or all of which could have a material adverse effect on our business, results of operations and financial position. We cannot be sure that any acquired businesses will achieve the anticipated revenues, income and synergies. Failure on our part to manage our acquisition strategy successfully could have a material adverse effect on our business, results of operations and financial position. We cannot be sure that we will be able to identify appropriate targets, profitably manage additional businesses or successfully integrate any acquired business into our operations.

We may hold derivative instruments, which could result in significant losses and volatility of our operating results.

        We may hold significant investments in derivative instruments and the market value and liquidity of these investments are volatile or extremely volatile and may vary dramatically up or down in short periods, and their ultimate value will therefore only be known upon their disposition or settlement. We use derivative instruments primarily for general protection against declines in the fair value of our financial assets. We may use derivative instruments to manage or reduce risks or as a cost-effective way to synthetically replicate the investment characteristics of an otherwise permitted investment. A replication derivative exposes us to the same risks that we would have incurred if we had acquired the otherwise permitted investment directly. Our use of derivative instruments may include, without limitation: interest rate swaps, credit default swaps, total return swaps, warrants, options, forwards, futures and consumer price index-linked contracts.

        Our use of derivative instruments is governed by our investment policies and exposes us to a number of risks, including credit risk, interest rate risk, liquidity risk, inflation risk, market risk, basis risk and counterparty risk, although these risks are diminished because our principal use of derivative instruments is to hedge exposures to various risks. Counterparty risk is the risk that the other party to a derivative instrument will default on its contractual obligations. If the counterparties to our derivative instruments fail to honor their obligations under the derivative instrument agreements, we may lose the value of our derivative instruments. This failure could have an adverse effect on our financial condition and results of operations.

        We endeavor to limit counterparty risk through diligent selection of counterparties to our derivative instruments and through the terms of agreements negotiated with our counterparties. Pursuant to these agreements, we and the counterparties are required to deposit eligible collateral in collateral accounts for either the benefit of us or the counterparty depending on the then current fair value or change in the fair value of the derivative contract. Our obligation to collateralize liabilities related to our derivative instruments may adversely affect our liquidity by causing us to sell portfolio investments under potentially unfavorable market conditions to enable us to comply with the terms of the collateral requirements of our derivative instruments and ultimately to fulfill our obligations to our counterparties. In addition, the terms of our derivative instrument agreements typically permit our counterparties to terminate the derivative contracts prior to maturity if our financial strength ratings are downgraded below a pre-determined level. Such a termination could have a material adverse effect on our financial condition and results of operations.

        We may not be able to realize our investment objectives with respect to derivative instruments, which could have a material adverse effect on our financial position, profitability or cash flows.

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The methods we employ to hedge risks associated with certain of our financial instruments may fail to achieve their desired risk management objectives.

        We may use derivative instruments from time to time to manage or reduce our exposure to credit risk and various market risks, including interest rate risk, equity market risk, inflation/deflation risk and foreign currency risk. Our hedging strategies may be implemented to hedge risks associated with a specific financial instrument, asset or liability or at a macro level to hedge systemic financial risk and the impact of potential future economic crisis and credit related problems on our operations and the value of our financial assets. We have typically used credit default swaps, total return swaps and consumer price index-linked derivative instruments to hedge macro level risks, although we do not expect to undertake hedges of such risks in the foreseeable future.

        Our derivative instruments may expose us to basis risk, notwithstanding that our principal use of derivative instruments is to hedge exposures to various risks. Basis risk is the risk that the fair value or cash flows of derivative instruments applied as economic hedges will not experience changes in exactly the opposite directions from those of the underlying hedged exposure. This imperfect correlation between the derivative instrument and underlying hedged exposure creates the potential for excess gains or losses in a hedging strategy which may adversely impact the net effectiveness of the hedge and may diminish the financial viability of maintaining the hedging strategy and therefore adversely impact our financial condition, profitability or cash flows.

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

        The property and casualty insurance industry and the reinsurance industry are both highly competitive, and we believe that they will remain highly competitive in the foreseeable future. Competition in our industry is based on many factors, including premiums charged and other terms and conditions offered, products and services provided, commission structure, financial ratings assigned by independent rating agencies, speed of claims payment, reputation, selling effort, perceived financial strength and the experience of the insurer or reinsurer in the line of insurance or reinsurance to be written. We compete, and will continue to compete, with a large number of Canadian, U.S. and foreign insurers and reinsurers, as well as certain underwriting syndicates, some of which have greater financial, marketing and management resources than we do, and there is no assurance that we will be able to successfully retain or attract business.

        We also are aware that other financial institutions, such as banks, are now able to offer services similar to those offered by our reinsurance subsidiaries. In addition, in recent years we have seen the creation of alternative products from capital market participants that are intended to compete with reinsurance products. We are unable to predict the extent to which these new, proposed or potential initiatives may affect the demand for our products or the risks that may be available for us to consider underwriting.

        Some insurance industry participants are consolidating to enhance their market power. These entities may try to use their market power to negotiate price reductions for our products and services. If competitive pressures compel us to reduce our prices, our operating margins would decrease. As the insurance industry consolidates, competition for customers will become more intense and the importance of acquiring and properly servicing each customer will become greater. We could incur greater expenses relating to customer acquisition and retention, further reducing our operating margins. In addition, insurance companies that merge may be able to spread their risks across a larger capital base so that they require less reinsurance.

Emerging claim and coverage issues, or the failure of any of the loss limitation methods we employ, could adversely affect our business, financial condition or results of operations.

        Unlike most businesses, the insurance and reinsurance business can have enormous costs that can significantly exceed the premiums received on the underlying policies. We seek to limit our loss exposure by employing a variety of policy limits and other terms and conditions and through prudent underwriting of each program written. We also seek to limit our loss exposure by geographic diversification. We cannot be sure that any of these loss limitation methods will be effective. There can be no assurance that various provisions of our policies, such as limitations or exclusions from coverage or choice of forum, will be enforceable in the manner we intend, thus substantially increasing the potential exposure we face under such policies.

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        The provision for claims is an estimate and may be found to be deficient, perhaps very significantly, in the future as a result of unanticipated frequency or severity of claims or for a variety of other reasons including unpredictable jury verdicts, expansion of insurance coverage to include exposures not contemplated at the time of policy issue (as was the case with asbestos and pollution exposures) and extreme weather events. 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 can have a negative effect on 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 include:

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continuing changes in the litigation climate surrounding asbestos claims, including tort reform efforts in various jurisdictions;

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increases in the number and size of claims relating to construction defects, which often present complex coverage and damage valuation questions;

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changes in interpretation of the named insured provision with respect to the uninsured/underinsured motorist coverage in commercial automobile policies;

•

breakthroughs in health care technology, which often lead to increasingly expensive treatments affecting workers compensation exposures; and

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a growing trend in the United States of plaintiffs targeting property and casualty insurers in purported class action litigation relating to claim-handling, premium calculation and billing, and other practices, particularly with respect to the handling of personal lines automobile and homeowners claims.

        The full effects of these and other unforeseen emerging claim and coverage issues are extremely hard to predict and could harm our business. As a result, the full extent of our liability under our coverages, and in particular our casualty insurance policies and reinsurance contracts, may not be known until many years after a policy or contract is issued. Our exposure to this uncertainty will grow as our "long-tail" casualty businesses grow, because in these lines of business claims can typically be made for many years, rendering them more susceptible to these trends than in the property insurance lines of business, which are more typically "short-tail". In addition, we could be adversely affected by the growing trend of plaintiffs targeting participants in the property-liability insurance industry in purported class action litigation relating to claims handling and other practices.

Our inability to obtain additional capital in the future as required could have a material adverse effect on our financial condition.

        Our future capital requirements depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses. Our liquidity needs could increase materially and rapidly for a variety of reasons, many of which are outside of our control. For example, our insurance subsidiaries may require us to make additional investments in the event that their regulatory capital levels decline below desired levels as a result of future impairments of investment securities, catastrophe losses or other conditions, including changes in regulatory capital requirements. To the extent that the funds generated by our business are insufficient to fund future operations, we may need to raise additional funds through equity or debt financings. Any equity or debt financing, if available at all, may be on terms that are not favorable to us. The cost and availability of debt financing is affected by credit ratings. Our ability to raise additional capital may be adversely affected by our credit ratings. If we cannot obtain adequate capital or if we fail to refinance our existing debt as it comes due, our business, financial condition and profitability could be adversely affected.

        Our ability and/or the ability of our subsidiaries to obtain additional financing for working capital, capital expenditures or acquisitions in the future may also be limited under the terms of our US$2.0 billion unsecured revolving credit facility entered into by us and a syndicate of lenders (the "Credit Facility"). The Credit Facility contains various covenants that place restrictions on, among other things, our ability or the ability of our subsidiaries to incur additional indebtedness, to create liens or other encumbrances and to sell or otherwise dispose of assets and merge or consolidate with another entity. In addition, the Credit Facility contains certain financial covenants that require us to maintain a ratio of consolidated debt to consolidated capitalization of not

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more than 0.35:1 and to maintain consolidated shareholders' equity of not less than US$9.5 billion. A failure to comply with the obligations and covenants under the Credit Facility could result in an event of default under such agreement which, if not cured or waived, could permit acceleration of indebtedness, including other indebtedness of the Company or our subsidiaries. If such indebtedness were to be accelerated, there can be no assurance that our assets would be sufficient to repay that indebtedness in full.

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, including our Chairman and significant shareholder, Mr. Prem Watsa and the senior management of the Company and its operating subsidiaries. We believe that the experiences and reputations in our industry of these individuals are important factors in our ability to attract new business. Our operating subsidiaries have also entered into employment agreements with our key employees. 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 any of these key employees, 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. We do not maintain key employee insurance with respect to any of our employees.

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

        We use reinsurance arrangements, including reinsurance of our own reinsurance business purchased from other reinsurers, referred to as retrocessionaires, to help manage our exposure to property and casualty risks. 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. Reinsurance companies can also add or exclude certain coverages from, or alter terms in, the policies that we purchase from them. Some exclusions are with respect to risks which 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 may impose 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, our insurance subsidiaries, like other primary insurance companies, increasingly are 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. If we cannot obtain adequate reinsurance protection for the risks we underwrite, we may be exposed to greater losses from those risks or we may be forced to reduce the amount of business we underwrite, which will reduce our revenues. As a result, our inability to obtain adequate reinsurance protection could have a material adverse effect on our financial condition and operations.

        The rates charged by reinsurers and the availability of reinsurance to our subsidiaries will generally reflect the recent loss experience of the Company and of the industry in general. For example, the significant hurricane losses in 2004 and 2005 caused the prices for catastrophe reinsurance protection in Florida to increase significantly in 2006. More recently, there has been excess capital within the reinsurance market due to favorable operating results of reinsurers and alternative forms of reinsurance capacity entering the market. As a result, the market has become very competitive with prices decreasing for most lines of business. However, significant hurricane and typhoon loss activity in 2017 and 2018 may result in higher costs for reinsurance protection going forward, especially on loss affected business. Each of our subsidiaries continues to evaluate the relative costs and benefits of accepting more risk on a net basis, reducing exposure on a direct basis, and paying additional premiums for reinsurance.

Our operations could be adversely affected as a result of regulatory, political, economic or other influences in the insurance and reinsurance industries.

        We are subject to government regulation in each of the jurisdictions in which our operating insurance subsidiaries are licensed or authorized to conduct business. Governmental bodies have broad administrative power to regulate many aspects of the insurance business, which may include accounting methods, governance, premium rates, market practices, policy forms, and capital adequacy. The laws and rules behind this regulation are concerned primarily with the protection of policyholders rather than investors. Governmental bodies may impose fines, additional capital requirements or limitations on our insurance and reinsurance operations, and/or impose criminal sanctions for violation of regulatory requirements. The laws and regulations that are applicable to our insurance and reinsurance operations are complex and may increase the costs of regulatory compliance or subject our business to the possibility of regulatory actions or proceedings.

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        In recent years, the insurance industry has been subject to increased scrutiny by legislatures and regulators alike. New laws and rules could adversely affect our financial results by limiting our operating insurance subsidiaries' ability to make investments consistent with our total return strategy or requiring us to maintain capital in specific operating subsidiaries in excess of the amounts we consider to be appropriate, or causing us to make unplanned modifications of products or services, or restrictions on our ability to enter or exit lines of insurance business. We cannot predict the future impact of changing law or regulation on our operations; any changes could have a material adverse effect on us or the insurance industry in general.

        Our insurance and reinsurance operations (including those located in foreign jurisdictions) are subject to the tax laws and regulations, and value added tax and other indirect taxes, in the countries in which they are organized and in which they operate. Foreign governments from time to time consider legislation and regulations that could increase the amount of taxes that we pay or impact the sales of our products. An increase to tax rates in the countries in which we operate could have an adverse effect on our financial condition and results of operations.

Our international business is subject to applicable laws and regulations relating to sanctions and foreign corrupt practices, the violation of which could adversely affect our operations.

        We must comply with all applicable economic sanctions and anti-bribery laws and regulations, including Canada, the U.S., the United Kingdom, the European Union and other foreign jurisdictions where we operate.

        U.S. laws and regulations applicable to us include the economic trade sanctions laws and regulations administered by the U.S. Department of the Treasury's Office of Foreign Assets Control, as well as certain laws administered by the U.S. Department of State. In addition, our business is subject to the Foreign Corrupt Practices Act and other anti-bribery laws such as the U.K. Bribery Act that generally bar corrupt payments or unreasonable gifts to foreign governments or officials. Although we have policies and controls in place that are designed to ensure compliance with these laws and regulations, it is possible that an employee or intermediary could fail to comply with applicable laws and regulations and due to the complex nature of the risks, it may not always be possible for us to ascertain compliance with such laws and regulations. In such event, we could be exposed to civil penalties, criminal penalties and other sanctions, including fines or other punitive actions. In addition, such violations could damage our business and/or reputation. Such criminal or civil sanctions, penalties, other sanctions, and damage to our business and/or reputation could have a material adverse effect on our financial condition and results of operations.

Certain business practices of the insurance industry have been the subject of negative publicity and investigations by government authorities and the subject of class action litigation.

        From time to time, the insurance industry has been subject to investigations, litigation and regulatory activity by various insurance, governmental and enforcement authorities, concerning certain practices within the industry. We sometimes receive inquiries and informational requests from insurance regulators or other government officials in certain jurisdictions in which our insurance subsidiaries operate. From time to time, consumer advocacy groups or the media also focus attention on certain insurance industry practices. We cannot predict at this time the effect that investigations, litigation and regulatory activity or negative publicity from consumers or the media will have on the insurance or reinsurance industry or our business, or whether activities or practices currently thought to be lawful will be characterized in the future as unlawful or will become subject to negative scrutiny from consumer advocacy groups or the media. Our involvement in any investigations and related lawsuits would cause us to incur legal costs and, if we were found to have violated any laws, we could be required to pay fines and damages, perhaps in material amounts. In addition, we could be materially adversely affected by the negative publicity for the insurance industry related to any such proceedings, and by any new industry-wide regulations or practices that may result from such proceedings or publicity. It is possible that future investigations or related regulatory developments will mandate changes in industry practices in a fashion that increases our costs of doing business or requires us to alter aspects of the manner in which we conduct our business.

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Political and other developments in foreign jurisdictions in which we operate could adversely affect our business and assets.

        Our international operations are regulated in various jurisdictions with respect to licensing requirements, currency, amount and type of security deposits, amount and type of reserves, amount and type of local investment and other matters. International operations and assets held abroad may be adversely affected by political and other developments in foreign countries, including possibilities of tax changes, nationalization and changes in regulatory policy, as well as by consequences of hostilities and unrest. The risks of such occurrences and their overall effect upon us vary from country to country and cannot easily be predicted.

We may be subject to regulatory proceedings or significant litigation, which will be expensive and time consuming and, if decided against us, could require us to pay substantial judgments or settlements.

        We may, from time to time, become party to a variety of legal claims and regulatory proceedings, including, but not limited to: disputes over coverage or claims adjudication; disputes regarding sales practices, disclosures, premium refunds, licensing, regulatory compliance and compensation arrangements; disputes with our agents, brokers or network providers over compensation and termination of contracts and related claims; regulatory actions relating to consumer pressure in relation to benefits realized by insurers; disputes with taxing authorities regarding our tax liabilities and tax assets; regulatory proceedings and litigation related to acquisitions or divestitures made or proposed by us or our subsidiaries or in connection with companies in which we hold an investment; and disputes relating to certain businesses acquired or disposed of by us. The existence of such claims against us or our affiliates, directors or officers could have various adverse effects, including negative publicity and the incurrence of significant legal expenses defending claims, even those without merit.

        On July 26, 2006, we filed a lawsuit seeking US$6 billion in damages from a number of defendants who, the complaint (as subsequently amended) alleges, participated in a stock market manipulation scheme involving our shares. The complaint, filed in Superior Court, Morris County, New Jersey, alleges violations of various state laws, including the New Jersey Racketeer Influenced and Corrupt Organizations Act, pursuant to which treble damages may be available. On September 12, 2012, before trial, and consequently without having heard or made any determination on the facts, the Court dismissed the lawsuit on legal grounds. In October 2012, we filed an appeal of this dismissal, as we believe that the legal basis for the dismissal is incorrect. On July 10, 2017, we filed with the New Jersey Supreme Court a petition for certification of the appeal court's decision. On October 20, 2017, that petition was denied by the Court. The case then moved ahead to a trial, which took place in September and October 2018. Prior to the trial, we agreed, in exchange for the receipt of a payment of US$20 million, to resolve our claims against Morgan Keegan & Company, Incorporated; that payment was received in September 2018. At the trial, the jury awarded the Company and Crum & Forster damages of US$10.9 million against Exis Capital Management and related Exis companies, Adam Sender and Andrew Heller, including punitive damages of US$3.0 million against Exis, US$2.25 million against Mr. Sender and US$250,000 against Mr. Heller. The Company intends to continue to pursue its remaining claims against other defendants in the lawsuit by way of appeals against previous court decisions. The ultimate outcome of any litigation is uncertain. The financial effects, if any, of this lawsuit cannot be practicably determined at this time, and our consolidated financial statements include no anticipated recovery from the lawsuit, except for the receipt of the US$20 million payment as described above.

        The Autorité des marchés financiers (the "AMF"), the securities regulatory authority in the Province of Quebec, is conducting an investigation of us, our Chief Executive Officer, V. Prem Watsa, and our President, Paul Rivett. The investigation concerns the possibility of illegal insider trading and/or tipping (not involving any personal trading by the individuals) in connection with the December 15, 2011 takeover offer by Resolute Forest Products Inc. ("Resolute") for shares of Fibrek Inc. ("Fibrek"). Except as set out below, further details concerning the investigation are, by law, not permitted to be disclosed.

        The AMF has authorized us to make the above-mentioned disclosure. The Company and our management are solely responsible for the content of the disclosure set out in the three following paragraphs; the AMF has not in any way endorsed that content.

        Resolute's above-mentioned takeover offer was made to all Fibrek shareholders, including us. We agreed in that transaction to a hard lock-up agreement with Resolute whereby we agreed to tender our shares of Fibrek,

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representing approximately 26% of Fibrek's outstanding shares, to the Resolute takeover offer at the same price as all other Fibrek shareholders. At the time of the Resolute takeover offer for Fibrek, our position in Fibrek was valued at approximately Cdn$32 million, representing less than ¹/6 of 1% of our total invested assets at that time.

        Fibrek actively opposed the Resolute takeover offer. In 2012, the Fibrek transaction was the subject of numerous regulatory hearings in Quebec and court proceedings relating to Fibrek's anti-takeover tactics and the hard lock-ups given by various selling shareholders, including us. Allegations were made in those hearings concerning the possibility of non-compliance with the takeover bid rules. Resolute's takeover offer was allowed to proceed and resulted in Resolute acquiring Fibrek.

        We believe that we have an unblemished record for honesty and integrity and are fully cooperating with the AMF's investigation. We continue to be confident that in connection with the Resolute takeover offer, we had no material non-public information, that we did not engage in illegal insider trading or tipping, and that there is no reasonable basis for any proceedings in this connection. To the best of our knowledge, the AMF investigation is still ongoing. If the AMF commences legal proceedings, no assurance can be given at this time by us as to the outcome.

Our computer and data processing systems may fail or be perceived to be insecure, which could adversely affect our business and damage our customer relationships.

        Our business is highly dependent upon the successful and uninterrupted functioning of our computer and data processing systems. We rely on these systems to perform actuarial and other modeling functions necessary for writing business, to process and make claim payments and to process and summarize investment transactions. We have a highly trained staff that is committed to the continual development and maintenance of these systems. Third parties provide certain of the key components of our business infrastructure such as voice and data communications and network access. Given the high volume of transactions processed daily, we are reliant on such third party provided services to successfully deliver our products and services. Despite the contingency plans of the Company and those of our third party service providers, the failure of these systems could interrupt our operations or materially impact our ability to rapidly evaluate and commit to new business opportunities. If sustained or repeated, a system failure could result in the loss of existing or potential business relationships, or compromise our ability to pay claims in a timely manner. This could result in a material adverse effect on our business results.

        In addition, a security breach of our computer systems could damage our reputation or result in liability. We retain confidential information regarding our business dealings in our computer systems, including, in some cases, confidential personal information regarding our insureds. We may be required to spend significant capital and other resources to protect against security breaches or to alleviate problems caused by such breaches. Any well-publicized compromise of security could deter people from conducting transactions that involve transmitting confidential information to our systems. Therefore, it is critical that these facilities and infrastructure remain secure and are perceived by the marketplace to be secure. Despite the implementation of security measures, including our implementation of a data security program specific to confidential personal information, this infrastructure may be vulnerable to physical break-ins, computer viruses, programming errors, attacks by third parties or similar disruptive problems. In addition, we could be subject to liability if hackers were able to penetrate our network security or otherwise misappropriate confidential information.

A disruption of our information technology systems could significantly affect our business.

        We rely on information technology in virtually all aspects of our business. A significant disruption or failure of our information technology systems could result in service interruptions, safety failures, security violations, regulatory compliance failures, and inability to protect information and assets against intruders, and other operational difficulties. Attacks perpetrated against our information systems could result in loss of assets and critical information and expose us to remediation costs and reputational damage.

        Although we have taken steps intended to mitigate these risks, including business continuity planning, disaster recovery planning and business impact analysis, a significant disruption or cyber intrusion could lead to misappropriation of assets or data corruption and could adversely affect our results of operations, financial

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condition and liquidity. Additionally, if we are unable to acquire or implement new technology, we may suffer a competitive disadvantage, which could also have an adverse effect on our results of operations, financial condition and liquidity.

        Cyber-attacks could further adversely affect our ability to operate facilities, information technology and business systems, or compromise confidential customer and employee information. Political, economic, social or financial market instability or damage to or interference with our operational assets, or our customers or suppliers may result in business interruptions, lost revenue, higher commodity prices, disruption in fuel supplies, lower energy consumption, unstable markets, increased security and repair or other costs, any of which may materially affect our consolidated financial results. Furthermore, instability in the financial markets as a result of terrorism, sustained or significant cyber-attacks, or war could also materially adversely affect our ability to raise capital.

Our significant shareholder may substantially influence our direction and operations.

        Mr. Prem Watsa, our Chairman and Chief Executive Officer, owns, directly or indirectly, or exercises control or direction over shares representing approximately 42.5% of the voting power of our outstanding shares. Amendments were made to the terms of the Multiple Voting Shares of the Company, which are controlled by Mr. Watsa, in August 2015 having the effect of preserving the voting power represented by the Multiple Voting Shares at 41.8% even if additional Subordinate Voting Shares of the Company are issued in the future. Mr. Watsa has the ability to substantially influence certain actions requiring shareholder approval, including approving a business combination or consolidation, liquidation or sale of our assets, electing members of our board of directors and adopting amendments to our articles of incorporation and by-laws. As a shareholder, Mr. Watsa may have different interests than you have and therefore may make decisions that are adverse to your interests. The terms of the Multiple Voting Shares may also have the effect of limiting the likelihood of an unsolicited take-over bid or merger proposal or a proxy contest for the removal of directors. As a result, our shareholders may be deprived of an opportunity to sell their shares at a premium over prevailing market prices and it may be difficult for shareholders to replace our directors and management.

We may be adversely affected by foreign currency fluctuations.

        Our reporting currency is the U.S. dollar. A portion of our premiums and our expenses are denominated in foreign currencies and a portion of our assets (including investments) and loss reserves are also denominated in foreign currencies. We may, from time to time, experience losses resulting from fluctuations in the values of foreign currencies (including when our foreign currency assets and liabilities are hedged) which could adversely affect our financial condition, profitability or cash flows.

We rely on independent brokers over whom we exercise little control, which exposes us to certain risks.

        We do business with a large number of independent brokers on a non-exclusive basis and we cannot rely on their commitment to our insurance and reinsurance products. Moreover, in some markets we operate pursuant to "open market" arrangements in which we have no formal relationships with brokers who place our risk in these markets. Our continued profitability depends, in part, on the marketing efforts of independent brokers and our ability to offer insurance products and maintain financial ratings that meet the requirements and preferences of such brokers and their policyholders.

        Because the majority of our brokers are independent, we have only limited ability to exercise control over them. In the event that an independent broker to which we have granted binding authority exceeds its authority by binding us on a risk which does not comply with our underwriting guidelines, we may be at risk for that policy until we receive the application and effect a cancellation. Although to date we have not experienced a material loss from improper use of binding authority of our brokers, any improper use of such authority may result in losses that could have a material adverse effect on our business, financial condition, profitability or cash flows.

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If the value of our goodwill and indefinite-lived intangible assets is impaired we would be required to write down the value of such assets.

        A portion of our assets are comprised of goodwill and indefinite-lived intangible assets which have arisen principally from various acquisitions made by us or our operating subsidiaries. We test the carrying value of goodwill and indefinite-lived intangible assets for impairment at least annually or more often if events or circumstances indicate there may be an impairment. Should we identify that the value of goodwill and indefinite-lived intangible assets is impaired, we would be required to write down the value of such assets to their fair value. Continued profitability of our acquired businesses is a key driver for there to be no impairment in the carrying value of our goodwill and indefinite-lived intangible assets.

Our failure to realize deferred income tax assets could lead to a writedown or tax authorities may take differing positions from ours, either of which could adversely affect our results of operations.

        Realization of deferred income tax assets is dependent upon the generation of taxable income in those jurisdictions where the relevant tax losses and temporary differences exist. Failure to achieve projected levels of profitability could lead to a reduction in our deferred income tax asset if it is no longer probable that the amount of the asset will be realized.

        We are subject to income taxes in Canada, the United States and many foreign jurisdictions where we operate, and our determination of our tax liability is subject to review by applicable domestic and foreign tax authorities. While we believe our tax positions to be reasonable, where our interpretations differ from those of tax authorities or the timing of realization is not as expected, the provision for income taxes may increase or decrease in future periods to reflect actual experience.

Technological or other changes could adversely impact demand, or the premiums payable, for the insurance coverages we offer.

        Technological changes could have unpredictable effects on the insurance and reinsurance industries. It is expected that new services and technologies will continue to emerge that will affect the demand for insurance and reinsurance products and services, the premiums payable, the profitability of such products and services and the risks associated with underwriting certain lines of business, including new lines of business. While we strive to maintain an innovation working group comprised of members with diverse backgrounds from across our global subsidiaries to regularly assess new services and technologies that may be applicable or disruptive to the insurance and reinsurance industries, failure to understand evolving technologies, or to position us in the appropriate direction, or to deploy new products and services in a timely way that considers customer demand and competitor activities could have an adverse impact on our business, financial condition, profitability or cash flows.

Assessments and other surcharges for guaranty funds and second-injury funds and other mandatory pooling arrangements may reduce the profitability of our insurance subsidiaries.

        Virtually all U.S. states require insurers licensed to do business in their state to bear a portion of the loss suffered by some insureds as a result of impaired or insolvent insurance companies. Many states also have laws that establish second-injury funds to provide compensation to injured employees for aggravation of a prior condition or injury. In addition, as a condition to the ability to conduct business in various jurisdictions, some of our insurance subsidiaries are required to participate in mandatory property and casualty shared market mechanisms or pooling arrangements, which provide various types of insurance coverage to individuals or other entities that otherwise are unable to purchase that coverage from private insurers. The effect of these assessments and mandatory shared-market mechanisms or changes in them could reduce the profitability of our U.S. insurance subsidiaries in any given period or limit their ability to grow their business. Similarly, our Canadian insurance subsidiaries contribute to mandatory guaranty funds that protect insureds in the event of a Canadian property and casualty insurer becoming insolvent.

21

Risk Factors Relating to the Exchange Notes

The market value of the Exchange Notes may be affected by changes in credit ratings.

        The value of the Exchange Notes will be affected by the general creditworthiness of the Company. Real or anticipated changes in credit ratings on the Exchange Notes may affect the market value of the Exchange Notes. No assurance can be given that any credit rating assigned to the Exchange Notes will not be lowered or withdrawn entirely by the relevant rating agency or that negative trends will not be applied by any ratings agency.

        The Initial Notes were assigned a rating of BBB(H) by DBRS Limited ("DBRS"), Baa3 by Moody's Investor Service, Inc. ("Moody's") and BBB- by Standard and Poor's Ratings Services, a division of S&P Global, Inc. ("S&P"). One or more other independent credit rating agencies may assign credit ratings to the Exchange Notes. The ratings may not reflect the potential impact of all risks related to the structure, market, additional risk factors discussed herein and other factors that may affect the value of the Exchange Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal by the rating agency at any time. No assurance can be given that a credit rating will remain constant for any given period of time or that a credit rating will not be lowered or withdrawn entirely by the credit rating agency if, in its judgment, circumstances in the future so warrant. A suspension, reduction or withdrawal at any time of a credit rating assigned to the Exchange Notes by one or more of the credit rating agencies may adversely affect the cost and terms and conditions of our financing and could adversely affect the value and trading of the Exchange Notes.

The Exchange Notes are effectively subordinated to the indebtedness of our subsidiaries.

        The Exchange Notes are effectively subordinated to any existing and future indebtedness and other liabilities of our subsidiaries. You will not have any claim as a creditor against our subsidiaries or the assets of our subsidiaries. Therefore, in the event of the insolvency or liquidation of a subsidiary, following payment by such subsidiary of its liabilities, the subsidiary may not have sufficient remaining assets to make payments to us as a shareholder or otherwise. In the event of a default by a subsidiary under any credit agreement or other indebtedness, its creditors could accelerate the debt, prior to such subsidiary distributing amounts to us that we could use to make payments on the Exchange Notes. In addition, if we caused a subsidiary to pay a dividend to us to make payments on the Exchange Notes, and the dividend was determined to be improperly paid, holders of the Exchange Notes would be required to return the payment to the subsidiary's creditors.

        As of September 30, 2018, our subsidiaries had US$2,586.0 million principal amount of indebtedness. Our subsidiary debt may increase in the future. The terms of the Exchange Notes do not limit the ability of our subsidiaries to incur additional indebtedness that is senior to the Exchange Notes.

We are a holding company, and we may not have access to the cash that is needed to meet our financial obligations or to make payments on the Exchange Notes.

        We are a holding company and conduct substantially all our business through our subsidiaries and receive substantially all our earnings from them. The Company controls our operating insurance and reinsurance companies, each of which must comply with applicable insurance regulations of the jurisdictions in which it operates. Each such company must maintain reserves for losses and loss adjustment expenses to cover the risks it has underwritten. The reserves of one of our insurance or reinsurance companies are not available to be applied against the risks underwritten by other of our companies. The financial condition and results of operations of each of the insurance and reinsurance companies we control are included in our consolidated financial statements and, generally, losses incurred by any of our companies directly impact our consolidated results. Although a severe loss incurred by one company should not have any adverse effect on any of our other companies, such loss, even though not material to us when our financial condition is viewed as a whole, could have an adverse effect on us because it could affect adversely how our other companies are treated by others, including rating agencies and insurance regulators.

        Although substantially all of our operations are conducted through our subsidiaries, none of our subsidiaries are obligated to make funds available to us for payment on our outstanding debt, including the Exchange Notes. Accordingly, our ability to meet our financial obligations, including to make payments on our

22

outstanding debt and the Exchange Notes, is dependent on the distribution of earnings from our subsidiaries. The ability of our insurance and reinsurance subsidiaries to pay dividends to the Company in the future will depend on their statutory surplus, on earnings and on regulatory restrictions, including limits on the amount of dividends they can pay without permission from their domestic regulators. The ability of our insurance and reinsurance subsidiaries to pay dividends or make distributions or returns of capital to the Company is subject to restrictions set forth in the insurance laws and regulations of the various jurisdictions in which our operating subsidiaries are domiciled and is affected by the credit agreements and indentures of our subsidiaries, capital support agreements with our subsidiaries and the criteria of third party rating agencies that assess and rate the claims paying ability of our subsidiaries. No assurance can be given that some or all of our operating subsidiaries' jurisdictions will not adopt statutory provisions more restrictive than those currently in effect. Our subsidiaries may incur additional indebtedness that may severely restrict or prohibit the making of distributions, the payment of dividends or the making of loans by our subsidiaries to the Company. We cannot assure you that the agreements governing the current and future indebtedness of our subsidiaries will permit our subsidiaries to provide the Company with sufficient dividends, distributions or loans to meet the Company's financial obligations, including to fund payments on its outstanding debt, or the Exchange Notes, when due.

We may incur additional indebtedness that may adversely affect our ability to meet our financial obligations under the Exchange Notes.

        Our obligations under the Exchange Notes rank equally with all of our other unsecured senior indebtedness. As of September 30, 2018, the Company had approximately US$6.6 billion of total outstanding indebtedness. The Indenture governing the Exchange Notes does not limit the amount of additional indebtedness that we may incur. We may incur additional indebtedness in the future, which could have important consequences to holders of the Exchange Notes, including the following:

•

we could have insufficient cash to meet our financial obligations, including our obligations under the Exchange Notes;

•

our ability to obtain additional financing for working capital, capital expenditures or general corporate purposes may be impaired; and

•

a significant degree of debt could make us more vulnerable to changes in general economic conditions and could also affect the financial strength ratings of our insurance and reinsurance subsidiaries.

Holders of the Exchange Notes may not be protected in the event we are involved in a highly leveraged transaction, reorganization, restructuring, merger or similar transaction in the future.

        The Indenture under which the Initial Notes were issued may not sufficiently protect holders of the Exchange Notes if we are involved in a highly leveraged transaction, reorganization, restructuring, merger or similar transaction. The Indenture does not contain:

•

any provision restricting us or any of our subsidiaries from incurring, assuming or being liable with respect to any indebtedness or other obligations;

•

any provision restricting us or our subsidiaries from incurring, assuming or being liable with respect to any unsecured indebtedness or other unsecured obligations;

•

any provision restricting us or any of our subsidiaries from paying dividends or making other distributions on capital stock or from purchasing or redeeming capital stock;

•

any restrictions on the ability of our subsidiaries to issue securities that would be senior to the common shares of the subsidiary held by us;

•

any financial ratios or specified level of net worth to which we or our subsidiaries must adhere; or

•

any specific restrictions on our ability to contribute our assets to our insurance subsidiaries.

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The price at which you may be able to resell your Exchange Notes may be adversely affected by factors that are beyond our control.

        If you are able to resell your Exchange Notes, the price you receive will depend on many factors that may vary over time, including:

•

the number of potential buyers;

•

the level of liquidity of the Exchange Notes;

•

our financial performance;

•

the amount of indebtedness we have outstanding;

•

the level, direction and volatility of market interest rates generally; and

•

the market for similar securities.

        Prevailing yields on similar securities will affect the market value of the Exchange Notes. Assuming all other factors remain unchanged, the market value of the Exchange Notes would be expected to decline as prevailing yields for similar securities rise and would be expected to increase as prevailing yields for similar securities decline. Spreads over the U.S. treasury yields and comparable benchmark rates of interest for similar securities will also affect the market value of the Exchange Notes in an analogous manner.

        As a result of these factors, you may only be able to sell your Exchange Notes at prices below those you believe to be appropriate, including prices below the price at which you acquired the Initial Notes.

There may be no active market for the Exchange Notes.

        There is currently no public market for the Exchange Notes, and we do not intend to apply for listing of the Exchange Notes on any securities exchange or any automated quotation system. Accordingly, we cannot be sure that any active market for the Exchange Notes will develop, or if one does develop, that it will be maintained. If an active market for the Exchange Notes fails to develop or be sustained, the trading price of the Exchange Notes could decline.

The Exchange Notes may be redeemed prior to maturity.

        The Exchange Notes may be redeemed, at our option, in whole at any time or in part from time to time on or after the closing of the Exchange Offer and prior to the maturity date, or in whole but not in part in the event of certain developments affecting Canadian taxation. Holders of Exchange Notes should assume that our redemption option will be exercised if it is in our interest to redeem the Exchange Notes. Holders whose Exchange Notes are redeemed would not be entitled to participate in any future growth in the market price of the Exchange Notes and may not be able to reinvest their redemption proceeds in securities providing a comparable expected rate of return to maturity as the Exchange Notes for a comparable level of risk. See "Description of the Notes — Optional Redemption" and "Description of the Notes — Redemption for Tax Reasons".

Risk Factors Relating to the Exchange Offer

If you do not validly tender your Initial Notes, you will not receive Exchange Notes in the Exchange Offer, and the resale restrictions applicable to the Initial Notes will continue to apply to those Initial Notes that are not validly exchanged.

        Only Initial Notes that are validly tendered (and not validly withdrawn) will be exchanged in the Exchange Offer and registered under the Securities Act. The Initial Notes that are not so exchanged will continue to be subject to restrictions on transfer under applicable U.S. federal and state securities laws, and while subject to such restrictions, may not be offered, sold or transferred in the United States except pursuant to an exemption from the registration requirements of, or in a transaction not subject to, the Securities Act and applicable state securities laws, or pursuant to an effective registration statement. Upon consummation of the Exchange Offer, certain registration and other rights under the Registration Rights Agreement will terminate. Similarly, the Exchange Notes may not be offered or sold in Canada except pursuant to applicable prospectus registration

24

exemptions. The Company will issue Exchange Notes only in exchange for Initial Notes that are timely received by the exchange agent, together with all required documents, including a properly completed and duly signed letter of transmittal or notice of guaranteed delivery. Therefore, you should allow sufficient time to ensure timely delivery of the Initial Notes and should carefully follow the instructions on how to tender your Initial Notes.

        Neither the Company nor the exchange agent is required to notify you of any defects or irregularities with respect to your tender of the Initial Notes. If you do not tender your Initial Notes or if the Company does not accept your Initial Notes because you did not tender your Initial Notes properly, then, after consummation of the Exchange Offer, you will continue to hold Initial Notes that are subject to existing transfer restrictions.

        Although the Company may in the future seek to acquire unexchanged Initial Notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise, the Company has no present plans to acquire any unexchanged Initial Notes or to file with the SEC a shelf registration statement or a prospectus with any securities regulatory authority in Canada to permit resales of any unexchanged Initial Notes. In addition, holders who do not tender their Initial Notes (except for the initial purchaser or holders of Initial Notes (i) who are prohibited by applicable law or SEC policy from participating in the Exchange Offer, (ii) who may not resell the Exchange Notes acquired in the Exchange Offer without delivering a prospectus or (iii) for whom this short form prospectus is not appropriate or available for resales of Exchange Notes acquired in the Exchange Offer) will not have any further registration rights and will not have the right to receive additional interest on their Initial Notes.

The market for the Initial Notes may be significantly more limited after the Exchange Offer.

        Because we anticipate that most holders of Initial Notes will elect to exchange their Initial Notes, it is likely that the liquidity of the market for any Initial Notes remaining after the completion of the Exchange Offer may be substantially limited. Any Initial Notes tendered and exchanged in the Exchange Offer will reduce the aggregate principal amount of the Initial Notes outstanding. Accordingly, the liquidity of the market for any remaining Initial Notes could be adversely affected and you may be unable to sell them. The extent of the market for the Initial Notes and the availability of price quotations would depend on a number of factors, including the number of holders of Initial Notes remaining outstanding and the interest of securities firms in maintaining a market in the Initial Notes. An issue of securities with a smaller number of units available for trading may command a lower, and more volatile, price than would a comparable issue of securities with a larger number of units available for trading; therefore, the market price for the Initial Notes that are not exchanged may be lower and more volatile as a result of the reduction in the aggregate principal amount of the Initial Notes outstanding.

        If you do not properly tender your Initial Notes, you will not receive Exchange Notes in the Exchange Offer, and you may not be able to sell your Initial Notes.

Some persons who participate in the Exchange Offer must deliver a prospectus in connection with resales of the Exchange Notes.

        If you exchange your Initial Notes in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes, you may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction.

        Based on our understanding of interpretations of the Staff of the SEC 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) and Shearman & Sterling (available July 2, 1993), we believe that holders who (i) are not "affiliates" of the Company within the meaning of Rule 405 under the Securities Act; (ii) acquire their Exchange Notes in the ordinary course of business; (iii) do not engage in, intend to engage in, or have arrangements to participate in a distribution (within the meaning of the Securities Act) of the Exchange Notes; and (iv) are not broker-dealers, may offer for resale, resell or otherwise transfer the Exchange Notes without compliance with the registration and prospectus delivery requirements of the Securities Act. Holders described in the preceding sentence must tell us in writing at our request that they meet these criteria.

25

        Holders that do not meet these criteria could not rely on interpretations of the SEC in no-action letters, and will have to register the Exchange Notes they receive in the Exchange Offer and deliver a prospectus for them. If such a holder transfers any Exchange Notes without delivering a prospectus meeting the requirements of the Securities Act or without an applicable exemption from registration under the Securities Act, such a holder may incur liability under the Securities Act. We do not and will not assume, or indemnify such a holder against, this liability. In addition, holders that are broker-dealers may be deemed "underwriters" within the meaning of the Securities Act in connection with any resale of Exchange Notes acquired in the Exchange Offer. Holders that are broker-dealers that receive Exchange Notes for their own account in exchange for Initial Notes that were acquired as a result of market-making activities or other trading activities must acknowledge that they will deliver a prospectus (or, to the extent permitted by law, make available a prospectus to purchasers) in connection with any resale of Exchange Notes they acquire in the Exchange Offer in order not to be deemed an underwriter.

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USE OF PROCEEDS

        The Company will not receive any cash proceeds from the issuance of the Exchange Notes. The Company is making this exchange solely to satisfy its obligations under the Registration Rights Agreement entered into in connection with the offering of the Initial Notes. In consideration for issuing the Exchange Notes, the Company will receive Initial Notes in the same aggregate principal amount. The Company has agreed to pay the expenses of the Exchange Offer, other than certain taxes. The form and terms of the Exchange Notes are identical in all material respects to the form and terms of the Initial Notes, except as otherwise described herein, including under "The Exchange Offer — Terms of the Exchange Offer". The Initial Notes surrendered in exchange for the Exchange Notes will be retired and cancelled and will not be reissued. Accordingly, the issuance of the Exchange Notes will not result in any change in our outstanding indebtedness.

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CONSOLIDATED CAPITALIZATION

        As no proceeds will be realized from the Exchange Offer, the completion of the Exchange Offer will have no material change on our capitalization. There have also been no material changes in the consolidated capitalization of the Company since September 30, 2018, the date of the Company's unaudited interim consolidated financial statements for the three and nine months ended September 30, 2018, which have not been disclosed in this short form prospectus or in the documents incorporated by reference herein.

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EARNINGS COVERAGE RATIOS

        The following consolidated financial ratios are calculated for the twelve-month periods ended September 30, 2018 and December 31, 2017.

        The "As Adjusted" ratio for the twelve months ended September 30, 2018 gives effect as of October 1, 2017 to the Exchange Offer.

        The "As Adjusted" ratio for the twelve months ended December 31, 2017 gives effect as of January 1, 2017 to:

i.

the Company's issuance on March 29, 2018 of €600.0 million principal amount of 2.75% unsecured senior notes due March 29, 2028 (the "Eurobond Notes") at an issue price of 98.791% of the principal amount for net proceeds after discount, commissions and expenses of US$723.2 million (€588.0 million);



ii.

the Company's repayment on April 15, 2018 of US$144.2 million principal amount of its 7.375% unsecured senior notes on maturity;



iii.

the Company's issuance on April 17, 2018 of US$600.0 million principal amount of 4.850% unsecured senior notes due April 17, 2028 (the Initial Notes);



iv.

the Company's redemption on April 30, 2018 of its remaining US$207.3 million (Cdn$267.3 million) principal amount of 7.25% unsecured senior notes due June 22, 2020 for cash consideration of US$232.0 million including accrued interest;



v.

Allied World's redemption during the first six months of 2018 of its US$300.0 million principal amount of 5.50% unsecured senior notes due November 15, 2020 for cash consideration of US$325.5 million including accrued interest;



vi.

the Company's issuance on May 18, 2018 of an additional €150.0 million principal amount of Eurobond Notes at an issue price of 98.893% of the principal amount for net proceeds after discount, commissions and expenses of US$173.3 million (€147.2 million);



vii.

the Company's redemption on June 15, 2018 of its US$500.0 million principal amount of 5.80% unsecured senior notes due May 15, 2021 for cash consideration of US$538.8 million including accrued interest;



viii.

Fairfax India's replacement on June 28, 2018 of its US$400.0 million principal amount floating rate term loan with a US$550.0 million principal amount floating rate syndicated term loan;



ix.

Fairfax Africa's repayment on August 29, 2018 of its US$150.0 million term loan; and



x.

the Exchange Offer.

        Except as described above, the following table does not reflect the interest cost of our debt and the debt of our subsidiaries or the preferred share dividend requirements on preferred shares issued during the periods as if they were issued at the beginning of the periods.

	Twelve Months Ended
	September 30, 2018				December 31, 2017
	Actual		As Adjusted		Actual		As Adjusted
Earnings coverage(1)		7.2		7.2		6.0		6.0

(1)

Earnings coverage is equal to consolidated net earnings before interest expense and income taxes divided by consolidated interest expense and preferred share dividend distributions adjusted to a before tax equivalent at the Company's statutory income tax rate of 26.5%.

        Our consolidated interest expense amounted to $355.2 million and $331.2 million for the twelve-month periods ended September 30, 2018 and December 31, 2017, respectively. Our preferred share dividend

29

requirements, adjusted to a before tax equivalent at the Company's statutory income tax rates, amounted to $61.6 million and $60.7 million for the twelve-month periods ended September 30, 2018 and December 31, 2017, respectively. Our consolidated net earnings before interest expense and income taxes for the twelve-month periods ended September 30, 2018 and December 31, 2017 were $2,989.1 million and $2,354.4 million, respectively, which was 7.2 and 6.0 times our consolidated interest expense and preferred share dividend requirements for the twelve-month periods ended September 30, 2018 and December 31, 2017, respectively.

        After giving effect to the adjustments as described above as of the beginning of the period, our consolidated interest expense would have amounted to $355.2 million and $321.3 million for the twelve-month periods ended September 30, 2018 and December 31, 2017, respectively.

        After giving effect to the adjustments as described above as of the beginning of the periods, our consolidated net earnings before interest expense and income taxes for the twelve-month periods ended September 30, 2018 and December 31, 2017 would have been $2,989.1 million and $2,295.9 million, respectively, which was 7.2 and 6.0 times our consolidated interest expense and preferred share dividend requirements for the twelve-month periods ended September 30, 2018 and December 31, 2017, respectively.

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DESCRIPTION OF MATERIAL INDEBTEDNESS AND OTHER COMMITMENTS

Exchange Notes and Initial Notes

        On April 17, 2018, the Company issued US$600.0 million aggregate principal amount of its 4.850% Senior Notes due 2028, or the Initial Notes, under the Indenture. If all the conditions of the Exchange Offer are satisfied, the Company intends to exchange the Initial Notes that are validly tendered and not validly withdrawn for an equal principal amount of Exchange Notes.

Other Indebtedness

        As of September 30, 2018, we had US$6,605.2 million principal amount of long-term debt outstanding (including the Initial Notes). We had US$6,396.9 million principal amount of long-term debt outstanding as of December 31, 2017.

        On March 29, 2018, the Company completed an offering of €600.0 million principal amount of 2.75% unsecured senior notes due March 29, 2028 (the "Eurobond Notes") at an issue price of 98.791% of the principal amount for net proceeds after discount, commissions and expenses of US$723.2 million (€588.0 million).

        On April 15, 2018, the Company repaid US$144.2 million principal amount of its 7.375% unsecured senior notes on maturity.

        On April 30, 2018, the Company redeemed its remaining US$207.3 million (Cdn$267.3 million) principal amount of 7.25% unsecured senior notes due June 22, 2020 for cash consideration of US$232.0 million including accrued interest.

        During the first six months of 2018, Allied World redeemed its US$300.0 million principal amount of 5.50% unsecured senior notes due November 15, 2020 for cash consideration of US$325.5 million including accrued interest.

        On May 18, 2018, the Company completed an offering of an additional €150.0 million principal amount of Eurobond Notes at an issue price of 98.893% of the principal amount for net proceeds after discount, commissions and expenses of US$173.3 million (€147.2 million). The issuance was a re-opening of the €600.0 million principal amount of Eurobond Notes issued on March 29, 2018.

        On June 15, 2018, the Company redeemed its US$500.0 million principal amount of 5.80% unsecured senior notes due May 15, 2021 for cash consideration of US$538.8 million including accrued interest.

        On June 28, 2018 Fairfax India replaced its US$400.0 million principal amount floating rate term loan with a US$550.0 million principal amount floating rate syndicated term loan.

        On August 29, 2018, Fairfax Africa repaid its US$150.0 million term loan.

        On December 21, 2017, the Company increased its unsecured revolving credit facility with a syndicate of lenders to US$2.0 billion from US$1.0 billion and extended the expiry to December 21, 2021 from May 11, 2019. The credit facility contains certain financial covenants that require the Company to maintain a ratio of consolidated debt to consolidated capitalization of not more than 0.35:1 and consolidated shareholders' equity attributable to shareholders of the Company of not less than US$9.5 billion. At September 30, 2018 there were no amounts drawn on the credit facility and the Company was in compliance with its covenants.

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THE EXCHANGE OFFER

Terms of the Exchange Offer

General

        In connection with the issuance of the Initial Notes, the Company entered into the Registration Rights Agreement with the initial purchasers of the Initial Notes. The following contains a summary of the provisions of the Registration Rights Agreement. Because this is a summary description, it does not contain all of the information that may be important to an investor in the Exchange Notes and is qualified in its entirety by the Registration Rights Agreement. We refer you to the Registration Rights Agreement, which has been filed as an exhibit to the registration statement of which this short form prospectus forms a part.

        Under the Registration Rights Agreement, the Company agreed to file under the Securities Act and use its commercially reasonable efforts to cause to become effective under the Securities Act, on or prior to 360 days after the closing of the offering of the Initial Notes, the registration statement of which this short form prospectus is a part with respect to a registered offer to exchange the Initial Notes for Exchange Notes. The Company is required to keep the Exchange Offer open for at least 20 business days (or longer if required by law) after the date notice of the Exchange Offer is mailed to holders of the Initial Notes. If the Company fails to comply with certain obligations under the Registration Rights Agreement, we will be required to pay additional interest to holders of the Initial Notes.

        Upon the terms and subject to the conditions set forth in the registration statement filed on Form F-10 with the SEC, which includes this short form prospectus, and in the letter of transmittal, all Initial Notes validly tendered and not validly withdrawn prior to the Expiration Date will be accepted for exchange. Exchange Notes will be issued in exchange for an equal principal amount of outstanding Initial Notes accepted in the Exchange Offer. This short form prospectus, together with the letter of transmittal, is being sent to all holders of Initial Notes as of the date of this short form prospectus. The Exchange Offer is not conditioned upon any minimum principal amount of Initial Notes being tendered for exchange. However, the obligation to accept Initial Notes for exchange pursuant to the Exchange Offer is subject to certain customary conditions as set forth herein under "— Conditions".

        Initial Notes shall be deemed to have been accepted as validly tendered when, as and if the Company has given written notice thereof to The Bank of New York Mellon, the exchange agent. The exchange agent will act as agent for the tendering holders of Initial Notes for the purposes of receiving the Initial Notes and delivering Exchange Notes to such holders.

        Based on the Company's understanding of interpretations of the Securities Act by the staff of the SEC set forth in several no-action letters to third parties, including Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated (available June 5, 1991) and Shearman & Sterling (available July 2, 1993), the Company believes that holders who (i) are not "affiliates" of the Company within the meaning of Rule 405 under the Securities Act, (ii) acquire their Exchange Notes in the ordinary course of business, (iii) do not engage in, intend to engage in, or have arrangements to participate in a distribution (within the meaning of the Securities Act) of the Exchange Notes, and (iv) are not broker-dealers, may offer for resale, resell or otherwise transfer the Exchange Notes without compliance with the registration and prospectus delivery requirements of the Securities Act. Holders described in the preceding sentence must tell the Company in writing at the Company's request that they meet these criteria.

        By tendering Initial Notes in exchange for Exchange Notes and executing the letter of transmittal, each holder will represent to the Company that:

•

it is neither an affiliate of the Company nor a broker/dealer tendering Initial Notes acquired directly from the Company for its own account;

•

any Exchange Notes to be received by it will be acquired in the ordinary course of its business;

•

at the time of commencement of the Exchange Offer, it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes to be issued in the Exchange Offer; and

32

•

it is not acting on behalf of any person who could not truthfully make the foregoing representations.

        If such holder is a broker-dealer, it will also be required to represent that the Initial 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 Exchange Notes. 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 Initial 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 Exchange Notes for its own account in exchange for Initial Notes where such Initial 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 the Company or an affiliate of the Company to distribute the Exchange Notes in connection with any resale of such Exchange Notes.

        We have not entered into any arrangement or understanding with any person who will receive Exchange Notes in the Exchange Offer to distribute such Exchange Notes following completion of the Exchange Offer. We are not aware of any person that will participate in the Exchange Offer with a view to distribute the Exchange Notes.

        Upon consummation of the Exchange Offer, any Initial Notes not tendered will remain outstanding and continue to accrue interest but, subject to certain limited exceptions, holders of Initial Notes who do not exchange their Initial Notes for Exchange Notes in the Exchange Offer will no longer be entitled to registration rights or the payment of additional interest. In addition, such holders will not be able to offer or sell their Initial Notes, unless such Initial 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, the Company will have no obligation to effect a subsequent registration of the Initial Notes.

Expiration Date; Extensions; Amendments; Termination

        The Expiration Date shall be 5:00 p.m., New York City time, on    •    , 2019, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the Expiration Date shall be 5:00 p.m., New York City time on the date to which the Exchange Offer is extended.

        To extend the Expiration Date, the Company will notify the exchange agent of any extension by written notice and will notify the holders of Initial 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 Expiration Date. Such announcement will state that the Company is extending the Exchange Offer for a specified period of time.

        The Company reserves the right:

•

to delay acceptance of any Initial Notes, to extend the Exchange Offer or to terminate the Exchange Offer and not permit acceptance of Initial Notes not previously accepted if any of the conditions set forth under "— Conditions" shall have occurred and shall not have been waived prior to the Expiration Date, by giving written notice of such delay, extension or termination to the exchange agent; or

•

to amend the terms of the Exchange Offer in any manner deemed by the Company to be advantageous to the holders of the Initial Notes.

        Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by written notice to the exchange agent. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment in a manner reasonably calculated to inform the holders of the Initial Notes of such amendment and the Company will extend the Exchange Offer for a period of five to ten business days. In addition, if the Company amends or terminates the Exchange Offer, the Company will promptly file a post-effective amendment to the registration statement of which this short form prospectus forms a part. Without limiting the manner in which the Company

33

may choose to make public the announcement of any delay, extension, amendment or termination of the Exchange Offer, the Company shall have no obligation to publish, advertise or otherwise communicate any such public announcement, other than by making a timely release to an appropriate news agency.

Absence of Dissenter's Rights of Appraisal

        Holders of the Initial Notes do not have any dissenter's rights of appraisal in connection with the Exchange Offer.

Procedures for Tendering

        To tender in the Exchange Offer, a holder must do either of the following:

•

properly complete, sign and date the letter of transmittal, including all other documents required by the letter of transmittal; have the signature on the letter of transmittal guaranteed if the letter of transmittal so requires; and deliver that letter of transmittal and other required documents to the exchange agent at the address listed in the letter of transmittal on or before the Expiration Date; or

•

if the Initial Notes are tendered under the book-entry transfer procedures described below, transmit to the exchange agent, on or before the Expiration Date, an agent's message.

        In addition, one of the following must occur:

•

the exchange agent must receive certificates representing the holder's Initial Notes along with the letter of transmittal on or before the Expiration Date;

•

the exchange agent must receive a timely confirmation of book-entry transfer of the Initial Notes into the exchange agent's account at The Depository Trust Company ("DTC"), under the procedure for book-entry transfers described below along with the letter of transmittal or a properly transmitted agent's message, on or before the Expiration Date; or

•

the holder must comply with the guaranteed delivery procedures described below.

        The method of delivery of Initial Notes, letter of transmittal and all other required documents is at the election and risk of the holders. 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 Initial Notes, letters of transmittal or other required documents should be sent to the Company. Delivery of all Initial Notes, if applicable, letters of transmittal and other documents must be made to the exchange agent before the expiration date 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 Initial Notes will constitute an agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the applicable letter of transmittal. Any beneficial owner whose Initial 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 its 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 Financial Industry Regulatory Authority, 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 Initial Notes tendered pursuant thereto are tendered (1) by a registered holder of Initial 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 person should so indicate when signing and, unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with such letter of transmittal.

34

        All questions as to the validity, form, eligibility, time of receipt and withdrawal of the tendered Initial Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Initial Notes not validly tendered or exchange any Initial Notes if such exchange, in the opinion of counsel for the Company, be unlawful. The Company also reserves the absolute right to waive any irregularities or conditions of tender as to particular Initial Notes. The Company will not waive any condition of the Exchange Offer with respect to an individual holder unless the Company waives that condition for all holders. The Company's 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 Initial Notes must be cured within such time as the Company shall determine. Neither the Company, the exchange agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Initial Notes, nor shall any of them incur any liability for failure to give such notification. Tenders of Initial Notes will not be, or be deemed to have been, made until all irregularities have been cured or waived. Any Initial Note received by the exchange agent that is not validly 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, the Company reserves the right, in its sole discretion, subject to the provisions of the Indenture pursuant to which the Initial Notes were issued:

•

to purchase or make offers for any Initial Notes that remain outstanding subsequent to the Expiration Date or, as described under "— Conditions", to terminate the Exchange Offer;

•

to redeem Initial Notes as a whole, or in part, at any time and from time to time; and

•

to the extent permitted under applicable law, to purchase Initial Notes in the open market, in privately negotiated transactions or otherwise.

        The terms of any such purchases or offers could differ from the terms of the Exchange Offer.

        Each broker-dealer that receives Exchange Notes for its own account in exchange for Initial Notes where such Initial 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 the Company, or an affiliate of the Company, to distribute the Exchange Notes in connection with any resale of such Exchange Notes.

Acceptance of Initial Notes for Exchange; Delivery of Exchange Notes

        Upon satisfaction or waiver of all of the conditions to the Exchange Offer, all Initial Notes validly tendered will be accepted promptly after the Expiration Date and the Exchange Notes will be issued promptly after acceptance of the Initial Notes. See "— Conditions". For purposes of the Exchange Offer, Initial Notes shall be deemed to have been accepted as validly tendered for exchange when, as and if the Company has given written notice thereof to the exchange agent.

        For each Initial Note accepted for exchange, the holder of such Initial Note will receive an Exchange Note having a principal amount equal to that of the surrendered Initial Note.

        In all cases, issuance of Exchange Notes for Initial Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the exchange agent of:

•

certificates representing the Initial Notes or a timely book-entry confirmation of such Initial Notes into the exchange agent's account at DTC; and

•

a properly completed and duly executed letter of transmittal and all other required documents or a properly completed agent's message.

        If any tendered Initial Notes are not accepted for any reason described in the terms and conditions of the Exchange Offer, such unaccepted or such non-exchanged Initial Notes will be returned promptly without expense to the tendering holder thereof (if in certificated form), or credited to an account maintained with DTC after the expiration or termination of the Exchange Offer.

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Book-Entry Transfer

        The exchange agent has established an account with respect to the Initial Notes at DTC for purposes of the Exchange Offer. Any financial institution that is a participant in DTC's systems may make book-entry delivery of Initial Notes by causing DTC to transfer such Initial Notes into the exchange agent's account at DTC in accordance with DTC's procedures for transfer. However, although delivery of Initial Notes may be effected through book-entry transfer at DTC, the exchange agent must receive a properly completed and duly executed letter of transmittal with any required signature guarantees and all other required documents at its address listed in the letter of transmittal, or an agent's message instead of a letter of transmittal, on or before the Expiration Date, or if the holder complies with the guaranteed delivery procedures described below within the time period provided under those procedures.

Exchanging Book-Entry Notes

        DTC has confirmed that any financial institution that is a participant in DTC may utilize DTC's Automated Tender Offer Program ("ATOP") procedures to tender Initial Notes.

        Any participant in DTC may make book-entry delivery of Initial Notes by causing DTC to transfer such Initial Notes into the exchange agent's account in accordance with DTC's ATOP procedures for transfer. However, the exchange for the Initial Notes so tendered will only be made after a book-entry confirmation of the book-entry transfer of Initial 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 DTC and received by the exchange agent and forming part of a book-entry confirmation, which states that DTC has received an express acknowledgment from a participant tendering Initial 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 the Company may enforce such agreement against such participant.

Guaranteed Delivery Procedures

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

•

the tender is made through an eligible institution;

•

prior to the Expiration Date, the exchange agent receives by facsimile transmission (if no signature guarantee is required), mail or hand delivery from such eligible institution a properly completed and duly executed letter of transmittal and notice of guaranteed delivery, substantially in the form provided by the Company, which:



(1)

sets forth the name and address of the holder of Initial Notes and identifies the Initial Notes tendered, including the principal amount of such Initial Notes;



(2)

states that the tender is being made thereby; and



(3)

guarantees that within three business days after the Expiration Date, the letter of transmittal and any other documents required by the letter of transmittal and certificates representing the Initial Notes in proper form for transfer, or a book-entry confirmation, will be deposited by the eligible institution with the exchange agent; and

•

a properly completed and executed letter of transmittal and any other documents required by the letter of transmittal as well as certificates representing all tendered Initial Notes in proper form for transfer, or a book-entry confirmation, are received by the exchange agent within three business days after the Expiration Date.

Withdrawal of Tenders

        Tenders of Initial Notes may be withdrawn at any time prior to the Expiration Date.

36

        For a withdrawal to be effective, a written notice of withdrawal must be received by the exchange agent prior to the Expiration Date at the address set forth in the letter of transmittal. Any such notice of withdrawal must:

•

specify the name of the person having tendered the Initial Notes to be withdrawn;

•

identify the Initial Notes to be withdrawn, including the principal amount of such Initial Notes;

•

in the case of Initial Notes tendered by book-entry transfer, specify the number of the account at DTC from which the Initial Notes were tendered and specify the name and number of the account at DTC to be credited with the withdrawn Initial Notes and otherwise comply with the procedures of such facility;

•

contain a statement that such holder is withdrawing its election to have such Initial Notes exchanged;

•

be signed by the holder in the same manner as the original signature on the letter of transmittal by which such Initial Notes were tendered including any required signature guarantees, or be accompanied by documents of transfer to have the trustee with respect to the Initial Notes register the transfer of the Initial Notes in the name of the person withdrawing the tender; and

•

if certificates for Initial Notes have been transmitted, specify the name in which such Initial Notes are registered, if different from the person who tendered such Initial Notes.

        All questions as to the validity, form, eligibility and time of receipt of such notice will be determined by the Company, which determination shall be final and binding on all parties. Any Initial Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Tenders of Initial Notes will not be, or be deemed to have been, made if withdrawn. Any Initial 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 Initial Notes, or credited to an account maintained with DTC for the Initial Notes promptly after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Initial Notes may be re-tendered by following one of the procedures described under "— Procedures for Tendering" and "— Book-Entry Transfer" above at any time prior to the Expiration Date.

Conditions

        Notwithstanding any other provisions of the Exchange Offer, or any extension of the Exchange Offer, the Company will not be required to accept for exchange, or to exchange any Exchange Notes for, any Initial Notes and the Company may terminate the Exchange Offer or, at the Company's option, modify, extend or otherwise amend the Exchange Offer, if any of the following conditions are not satisfied on or prior to the Expiration Date:

•

no action or event shall have occurred or been threatened, no action shall have been taken, and no statute, rule, regulation, judgment, order, stay, decree or injunction shall have been issued, promulgated, enacted, entered, enforced or deemed to be applicable to the Exchange Offer or the exchange of Initial Notes for Exchange Notes under the Exchange Offer by or before any court or governmental regulatory or administrative agency, authority, instrumentality or tribunal, including, without limitation, taxing authorities, that either:



(1)

challenges the making of the Exchange Offer or the exchange of Initial Notes for Exchange Notes under the Exchange Offer or might, directly or indirectly, be expected to prohibit, prevent, restrict or delay consummation of, or might otherwise adversely affect in any material manner, the Exchange Offer or the exchange of Initial Notes for Exchange Notes under the Exchange Offer; or



(2)

in the Company's reasonable judgment, could materially adversely affect the Company's (or the Company's subsidiaries') business, condition (financial or otherwise), income, operations, properties, assets, liabilities or prospects or materially impair the contemplated benefits to the Company of the Exchange Offer or the exchange of Initial Notes for Exchange Notes under the Exchange Offer;

37

•

nothing has occurred or may occur that would or might, in the Company's reasonable judgment, be expected to prohibit, prevent, restrict or delay the Exchange Offer or impair the Company's ability to realize the anticipated benefits of the Exchange Offer;

•

there shall not have occurred: (a) any general suspension of or limitation on trading in securities in Canadian or United States securities or financial markets, whether or not mandatory, (b) any material adverse change in the prices of the Initial Notes that are the subject of the Exchange Offer, (c) a material impairment in the general trading market for debt securities, (d) a declaration of a banking moratorium or any suspension of payments in respect of banks by federal or state authorities in Canada or the United States, whether or not mandatory, (e) a commencement of a war, armed hostilities, a terrorist act or other national or international calamity directly or indirectly relating to Canada or the United States, (f) any limitation, whether or not mandatory, by any governmental authority on, or other event having a reasonable likelihood of affecting, the extension of credit by banks or other lending institutions in Canada or the United States, (g) any material adverse change in the securities or financial markets in Canada or the United States generally, or (h) in the case of any of the foregoing existing at the time of the commencement of the Exchange Offer, a material acceleration or worsening thereof; and

•

The Bank of New York Mellon, as trustee for the Initial Notes, shall have not been directed by any holders of Initial Notes to object in any respect to, nor take any action that could, in the Company's reasonable judgment, adversely affect the consummation of the Exchange Offer or the exchange of Initial Notes for Exchange Notes under the Exchange Offer, nor shall the trustee have taken any action that challenges the validity or effectiveness of the procedures used by the Company in making the Exchange Offer or the exchange of Initial Notes for Exchange Notes under the Exchange Offer.

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

        If any of the foregoing conditions are not satisfied, the Company may, at any time on or prior to the Expiration Date:

•

terminate the Exchange Offer and promptly return all tendered Initial Notes to the respective tendering holders;

•

modify, extend or otherwise amend the Exchange Offer and retain all tendered Exchange Notes until the Expiration Date, as extended, subject, however, to the withdrawal rights of holders; or

•

waive the unsatisfied conditions with respect to the Exchange Offer and accept all Initial Notes tendered and not previously validly withdrawn.

        The Company will not accept for exchange any Initial Notes tendered, and no Exchange Notes will be issued in exchange for any such Initial Notes, if at such time any stop order shall be threatened or in effect with respect to the registration statement of which this short form prospectus constitutes a part or the qualification of the Indenture under the Trust Indenture Act of 1939, as amended. The Company is required to use its commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest practicable date.

        In addition, subject to applicable law, the Company may in its absolute discretion terminate the Exchange Offer for any other reason.

Exchange Agent

        The Bank of New York Mellon has been appointed as exchange agent for the Exchange Offer. Questions and requests for assistance and requests for additional copies of this short form 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 the Company. The principal solicitation for tenders pursuant to the Exchange Offer is being made by mail; however, additional solicitations may be made by telephone, telecopy or in person by the Company's officers and regular employees.

        The Company will not make any payments to brokers, dealers or other persons soliciting acceptances of the Exchange Offer. The Company 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. The Company 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 short form prospectus and related documents to the beneficial owners of the Initial Notes, and in handling or forwarding tenders for exchange.

        The expenses to be incurred by the Company in connection with the Exchange Offer will be paid by the Company, including fees and expenses of the exchange agent and trustee for the Initial Notes and accounting, legal, printing and related fees and expenses.

        The Company will pay all transfer taxes, if any, applicable to the exchange of Initial Notes pursuant to the Exchange Offer. If, however, Exchange Notes or Initial 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 Initial Notes tendered, or if tendered Initial 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 Initial 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 Initial Notes who do not exchange their Initial Notes for Exchange Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Initial Notes as set forth in the legend thereon as a consequence of the issuance of the Initial Notes pursuant to exemptions from, or in transactions not subject to, (i) the registration requirements of the Securities Act and applicable state securities laws or (ii) the prospectus requirements of applicable securities laws in the provinces and territories of Canada, as applicable. The Initial Notes may not be offered, sold or otherwise transferred, except in compliance with (i) 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 or (ii) the prospectus requirements of applicable securities laws in the provinces and territories of Canada, or pursuant to an exemption therefrom or in a transaction not subject thereto, as applicable. The Company does not currently anticipate that it will register under the Securities Act the Initial Notes that are not tendered and accepted for purchase in the Exchange Offer. To the extent that Initial Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Initial Notes could be adversely affected.

Interest on the Exchange Notes

        The Exchange Notes will accrue interest at the rate of 4.850% per annum payable semi-annually in arrears in cash. The Exchange Notes will accrue interest from and including the last interest payment date on which interest was paid on the Initial Notes surrendered in exchange therefor or, if no interest has been paid on such Initial Notes, from the issue date of such Initial Notes; provided that if Initial Notes are 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 Exchange Notes received in exchange therefor will accrue from the date of such interest payment date. Interest on the Exchange Notes is payable on April 17 and October 17, beginning on April 17, 2019. No additional interest will be paid on Initial Notes tendered and accepted for exchange.

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INSURANCE REGULATORY MATTERS

        We are subject to regulation under the insurance laws of the various jurisdictions in which our operating insurance subsidiaries are domiciled or conduct business.

        The following is a summary of the principal insurance regulatory considerations in the United States, Canada, Bermuda and the United Kingdom, being the jurisdictions in which we conduct the majority of our business.

United States

General

        Our United States operating insurance subsidiaries are subject to extensive regulation throughout the United States. Although there is limited federal regulation of the insurance business in the United States, each state has a comprehensive system for regulating insurers operating in that state. The laws of the various states establish supervisory agencies with broad authority to regulate, among other things, licenses to transact business, premium rates, trade practices, market conduct, agent licensing, policy forms, underwriting and claims practices, insurance policy termination, reserve adequacy, permissible investments, governance and insurer solvency. States also regulate investment activities on the basis of quality, distribution and other quantitative criteria. Further, most states compel participation in and regulate composition of various shared market or residual market mechanisms. States have also enacted legislation that regulates insurance holding company systems, including acquisitions, dividends, the terms of affiliate transactions, and other related matters. Our United States operating insurance subsidiaries are domiciled in Arkansas, California, Connecticut, Delaware, New Hampshire, New Jersey and New York.

        Insurance companies are also affected by a variety of state and federal legislative and regulatory measures and judicial decisions that define the scope of the risks and benefits for which insurance is sought and provided. These include redefinitions of risk exposure in such areas as product liability, environmental damage and workers' compensation. In addition, individual state insurance departments may limit premium rates for some classes of insureds and prevent the insurance companies from charging rates adequate to reflect the level of risk assumed by the insurer for those classes. Such developments may result in adverse effects on the profitability of various lines of insurance. In some cases, these adverse effects on profitability can be minimized, when possible, through the repricing of coverages if permitted by applicable regulations, or the limitation or cessation of the affected business, which may be restricted by state law.

        Most states have insurance laws requiring that for certain lines of property and casualty insurance rate schedules, policy or coverage forms, and other information be filed with each such state's regulatory authority. In many cases, such rates and/or policy forms must be approved prior to use. A few states have considered or enacted limitations on the ability of insurers to share data used to compile rates. Such limitations have had, and are expected to have, no significant impact on us.

        Insurance companies are required to file detailed annual and quarterly financial reports with the state insurance regulators in each of the states in which they do business, and their business and accounts are subject to examination by such regulators at any time. In addition, these insurance regulators periodically examine each insurer's financial condition, adherence to statutory accounting practices, and compliance with insurance department rules and regulations, including market conduct and claims practices.

Insurance Regulation Concerning Change or Acquisition of Control

        The insurance codes in our operating insurance subsidiaries' respective domiciliary states each contain similar provisions (subject to certain variations) to the effect that the acquisition of "control" of a domestic insurer or of any person that directly or indirectly controls a domestic insurer cannot be consummated without the prior approval of the domiciliary insurance regulator. In general, a presumption of "control" arises from the direct or indirect ownership, control, possession with the power to vote or possession of proxies with respect to 10% or more of the outstanding voting securities of a domestic insurer or of a person that controls a domestic insurer. A person seeking to acquire control, directly or indirectly, of a domestic insurance company or of any person controlling a domestic insurance company generally must file with the relevant insurance regulatory

40

authority a statement relating to the acquisition of control containing certain information regarding the proposed acquisition and acquiring party required by statute and regulations, provide a copy of such statement to the domestic insurer and obtain the prior approval of such regulatory authority for the acquisition. In addition, certain state insurance laws contain provisions that require pre-acquisition notification to the state insurance regulator of a change of control of a non-domestic insurance company licensed in that state. Such pre-acquisition notification statutes authorize certain remedies, including the issuance of cease and desist orders with respect to the non-domestic licensed insurer and its affiliates doing business in the state if certain conditions exist, such as undue market concentration. Additionally, in most states, the insurance regulator is authorized to deny an application to acquire control of a domestic insurer if the acquisition of control of the domestic insurer would substantially lessen competition in insurance in the state or tend to create a monopoly.

        These laws regulating change of control may discourage potential acquisition proposals and may delay, deter or prevent a change of control of Fairfax, including through transactions and in particular unsolicited transactions, that some or all of our shareholders might consider to be desirable.

Regulation of Dividends and Other Payments

        We are a legal entity separate and distinct from our subsidiaries. As a holding company with no other business operations, our primary sources of cash to meet our obligations, including principal and interest payments with respect to indebtedness and preferred share dividend payments, are available dividends and other statutorily permitted payments, such as tax allocation payments and management and other fees, from our operating insurance subsidiaries. Our operating insurance subsidiaries are subject to various state statutory and regulatory restrictions, including regulatory restrictions that are imposed as a matter of statute, applicable generally to any insurance company in its state of domicile, which limit the amount of dividends or distributions an insurance company may pay to its shareholders without prior regulatory approval. Ordinary dividends, for which no regulatory approval is generally required, are limited to amounts determined by formula, which varies by state. The formula typically is based on the level of statutory surplus at the end of the prior year, as well as on some measure of statutory earnings for the prior year, in relation to total dividends paid during the prior twelve months. In addition, dividends generally may be paid only out of "earned surplus" as defined by each state. In every case, capital and surplus subsequent to the payment of any dividends must be reasonable in relation to an insurance company's outstanding liabilities and must be adequate to meet its financial needs. For these purposes, both surplus and earnings are determined in accordance with Statutory Accounting Principles (SAP), which differs in certain respects from IFRS and U.S. generally-accepted accounting principles.

        No assurance can be given that some or all of our operating insurance subsidiaries' domiciliary states will not adopt statutory provisions more restrictive than those currently in effect.

        If insurance regulators determine that payment of a dividend or any other payments to an affiliate (such as payments under a tax-sharing agreement or payments for employee or other services) would, because of the financial condition of the paying insurance company or otherwise, result in such insurance company being in a hazardous financial condition or would otherwise be prohibited by applicable law, the regulators may prohibit such payments that would otherwise be permitted without prior approval.

Statutory Surplus and Capital

        An insurance regulator may limit or prohibit the writing of new business by an insurance company within its jurisdiction when, in the regulator's judgment, the insurance company is not maintaining adequate statutory capital and surplus. We do not currently anticipate that any regulator would limit the amount of new business that our operating insurance subsidiaries may write given their current levels of statutory capital and surplus.

Risk-Based Capital

        In order to enhance the regulation of insurer solvency, the National Association of Insurance Commissioners ("NAIC") adopted risk-based capital ("RBC") requirements for property and casualty insurance companies. These RBC requirements, which have been adopted in all of the states in which our operating insurance subsidiaries are domiciled, are designed to assess capital adequacy and raise the level of protection that statutory surplus provides for policyholder obligations. The NAIC RBC model law provides that, for

41

property and casualty insurers, the RBC formula will take into account: (i) underwriting risk; (ii) asset risk; (iii) credit risk; and (iv) all other business risks and such other relevant risks as are set forth in the NAIC's Property/Casualty RBC Instructions. The RBC formula provides a mechanism for the calculation of an insurance company's Authorized Control Level ("ACL") RBC amount.

        The NAIC RBC model law stipulates four levels of regulatory action depending on how an insurer's statutory surplus compares to its RBC. The initial level, the "Company Action Level," requires the insurance company to submit a plan of corrective action to the relevant insurance commissioner if its surplus falls below 200% of the ACL amount (or below 300% of the ACL amount, when a "trend test" is triggered under the NAIC's Property/Casualty RBC Instructions). The next level, the "Regulatory Action Level," requires the company to submit a plan of corrective action and also allows the regulator to perform an examination of the company's business and operations and issue a corrective order if the surplus falls below 150% of the ACL amount (or other triggering events specified in the RBC model law occur). The third level, the ACL, permits the regulator to place the company under regulatory control, including rehabilitation or liquidation, if its surplus falls below 100% of that amount (or other triggering events specified in the RBC model law occur). The final action level, the "Mandatory Control Level," requires the insurance commissioner to place the company under regulatory control if its surplus falls below 70% of the ACL amount.

NAIC IRIS Ratios

        The NAIC has developed a set of financial relationships or "tests" called the Insurance Regulatory Information System ("IRIS") that was designed to facilitate early identification of companies that may warrant special attention by insurance regulatory authorities. IRIS identifies 13 industry ratios (referred to as "IRIS ratios") and specifies "usual ranges" for each ratio. An IRIS ratio that falls outside the usual range is not necessarily considered adverse. An insurance company may fall out of the usual range for one or more ratios because of specific transactions that are in themselves immaterial or eliminated at the consolidated level. Generally, an insurance company may become subject to increased regulatory scrutiny if it falls outside the usual ranges on multiple ratios.

Investment Regulation

        Our operating subsidiaries are subject to state laws and regulations that require diversification of investment portfolios and that limit the amount of investments in certain investment categories. Failure to comply with these laws and regulations may cause non-conforming investments to be treated as non-admitted assets for purposes of measuring statutory surplus and, in some instances, would require divestiture. As of the date of this short form prospectus, we believe our investments comply with such laws and regulations in all material respects.

Credit for Reinsurance and Licensing

        A primary insurer ordinarily will enter into a reinsurance agreement only if it can obtain credit for the reinsurance ceded on its U.S. statutory financial statements. In general, credit for reinsurance is allowed in the following circumstances: (1) if the reinsurer is licensed in the state in which the primary insurer is domiciled; (2) if the reinsurer is an "accredited" or otherwise approved reinsurer in the state in which the primary insurer is domiciled; (3) in some instances, if the reinsurer (a) is domiciled in a state that is deemed to have substantially similar credit for reinsurance standards as the state in which the primary insurer is domiciled and (b) meets certain financial requirements; or (4) if none of the above apply, to the extent that the reinsurance obligations of the reinsurer are collateralized appropriately, typically through the posting of a letter of credit for the benefit of the primary insurer, the deposit of assets into a trust fund established for the benefit of the primary insurer, or by the primary insurer retaining as collateral for the reinsurer's obligations, assets that would otherwise be transferred by the primary insurer to the reinsurer as consideration for the reinsurance. Some states have adopted provisions of the NAIC amendments to its Credit for Reinsurance Model Law and Regulation that allow full credit to U.S. ceding insurers for reinsurance ceded to qualified reinsurers (called "certified reinsurers") that do not otherwise satisfy the state's credit for reinsurance requirements based upon less than 100% collateralization. Under those provisions, collateral requirements may be reduced for reinsurers meeting

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certain criteria as to financial strength and reliability that are domiciled in jurisdictions that are found to have strong systems of insurance regulation.

        Recent developments may alter these credit for reinsurance provisions and, in particular, the collateral requirements of reinsurers domiciled in the European Union. The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") that was enacted in 2010 authorizes the Federal Insurance Office ("FIO") within the Department of Treasury to assist the Treasury Secretary in negotiating "covered agreements" between the U.S. and one or more foreign governments or regulatory authorities that address prudential measures with respect to the business of insurance or reinsurance. Where a state law is inconsistent with a "covered agreement" and provides less favorable treatment to foreign insurers than U.S. companies, the FIO Director may preempt conflicting state law. On September 22, 2017, the United States Department of Treasury, the United States Trade Representative and representatives of the European Union announced that they had signed a covered agreement that addresses reinsurance, group supervision, and the exchange of information between supervisory authorities in the United States and the European Union. With respect to reinsurance, subject to certain conditions, once fully implemented, the U.S.-EU covered agreement would eliminate collateral and local presence requirements for qualified U.S. reinsurers operating in the EU insurance market, and eliminate collateral and local presence requirements for qualified EU reinsurers operating in the U.S. insurance market, as a condition for and in connection with regulatory credit for reinsurance. The NAIC is in the process of adopting amendments to the Credit for Reinsurance Model Law and Regulation that, once adopted by the various states, would implement the reinsurance collateral provisions of the U.S.-EU covered agreement in those states, and would similarly eliminate reinsurance collateral requirements for qualified reinsurers operating in the U.S. that are domiciled in "Reciprocal Jurisdictions," as determined under the amended Credit for Reinsurance Model Law and Regulation. While this would not prevent our operating entities in the United States from continuing to request collateral from a European Union reinsurer (or a reinsurer domiciled in a Reciprocal Jurisdiction), it is unclear how much collateral our United States operating entities will be able to obtain from these reinsurers going forward.

        Our United States insurance subsidiaries face the above constraints in their dealings with out-of-state reinsurers and our reinsurance subsidiaries are indirectly subject to certain regulatory requirements imposed by jurisdictions in which ceding companies are licensed.

Guaranty Funds

        Virtually all U.S. states have separate insurance guaranty fund laws requiring property and casualty insurance companies licensed to do business in their respective jurisdictions to be members of their guaranty associations. These associations are organized to pay covered claims (as defined and limited by the various guaranty association statutes) under insurance policies issued by insolvent insurance companies. These associations generally levy assessments (up to prescribed limits) on all member insurers in a particular state on the basis of the proportionate share of the premiums written by member insurers in the covered lines of business in that state. Maximum assessments permitted by law in any one year generally vary between 1% and 2% of annual premiums written in the covered lines by a member in that state. Some states permit or require member insurers to recover assessments paid through surcharges on policyholders or through full or partial premium tax offsets, while other states permit recovery of assessments through the rate filing process.

        Our policy is to accrue for insolvencies when the loss is probable and the assessment amount can be reasonably estimated. In the case of most insurance insolvencies, our ability to reasonably estimate the insolvent insurer's liabilities or develop a meaningful range of the insolvent insurer's liabilities is significantly impaired by inadequate financial data with respect to the estate of the insolvent company as supplied by the guaranty funds. Although the amounts of any future assessments by guaranty funds cannot be predicted with certainty, we believe that future guaranty association assessments for known insurer insolvencies will not have a material adverse effect on our results of operations or financial condition.

Shared Markets

        As a condition of their licenses to do business, some of our operating insurance subsidiaries are required to participate in mandatory property and casualty shared market mechanisms, residual markets or pooling

43

arrangements, which provide various types of insurance coverage to individuals or other entities that are otherwise unable to purchase such coverage in the commercial insurance marketplace. Our United States operating insurance subsidiaries' participation in such shared markets or pooling mechanisms is generally proportionate to the amount of each of our operating insurance subsidiaries' direct premiums written for the type of coverage written by the specific pooling mechanism or residual market mechanism in the applicable state.

        Many states have laws that establish second-injury funds to provide compensation to injured employees for aggravation of a prior condition or injury. Generally, insurers writing workers' compensation in those states that have second-injury funds are subject to the laws creating the funds, including the various funding mechanisms that those states have adopted to fund the second-injury funds, including premium surcharges that effectively pass the cost of the fund on to policyholders.

        Certain of our operating insurance subsidiaries participate in the Florida Hurricane Catastrophe Fund, a state mandated catastrophe reinsurance fund. Business insurance is also subject to pooled insurance on a small scale for commercial properties insured through the various Fair Access to Insurance Requirements Plans that exist in most states.

        The amount of future losses or assessments from the shared and residual market mechanisms and pooling arrangements described above cannot be predicted with certainty. The underwriting results of these pools traditionally have been unprofitable. Although it is possible that future losses or assessments from such mechanisms and pooling arrangements could have a material adverse effect on our results of operations, we do not expect future losses or assessments from the shared and residual market mechanisms and pooling arrangements to have a material adverse effect on our liquidity or capital resources.

Insolvency of Insurers

        Insolvency proceedings for United States insurance companies, including reinsurers, are generally conducted pursuant to state insurance law. In the event one of our United States operating insurance subsidiaries becomes insolvent or otherwise is found by its domiciliary regulator to be in a hazardous financial condition as provided under applicable state insurance law, insolvency proceedings, up to and including rehabilitation, conservation and liquidation, would be initiated by the insurance regulator of the state in which the subsidiary is domiciled, which would serve as the domestic receiver of its properties, assets and business. Insurance regulators located in other states in which we conduct business may have jurisdiction over assets or properties located in such states under certain circumstances. In an insolvency proceeding, policyholders' claims would have priority over investors' claims.

Privacy Regulation

        The Gramm-Leach-Bliley Act and regulations promulgated under the Act, as well as state privacy statutes and regulations, govern the privacy of consumer financial information. The regulations limit disclosure by financial institutions of "nonpublic personal information" about individuals who obtain financial products or services for personal, family, or household purposes. Privacy regulation is an evolving area of state and federal regulation, which requires us to continue to monitor developments.

Cybersecurity

        In 2017, the NAIC adopted an Insurance Data Security Model Law that establishes minimum cybersecurity requirements applicable to licensed insurance companies and licensed insurance intermediaries. Among other requirements, the Insurance Data Security Model Law requires licensees to maintain an information security program based on a cybersecurity risk assessment, establish a written incident response plan, provide an annual certification of compliance to state insurance regulators, and investigate and notify state insurance regulators regarding cybersecurity events. A number of states are expected to adopt the Insurance Data Security Model Law in 2018 and 2019. The New York Department of Financial Services already has a cybersecurity regulation in effect, which includes transitional phase-in periods of up to two years. See also "Risk Factors — A disruption of our information technology systems could significantly affect our business."

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Regulation of Holding Company Systems

        While insurance in the United States is regulated primarily on a legal-entity basis, the NAIC has increased its focus on risks presented by an insurer's holding company system. In 2010, the NAIC adopted revisions to the Insurance Holding Company System Regulatory Act and the Insurance Holding Company system Model Regulation (together, the "Revised Model Holding Company Act and Regulation") that include, among other amendments, a requirement for the ultimate controlling person of every insurer to file an enterprise risk report annually. "Enterprise risk" is defined as any activity, circumstance, event or series of events involving one or more affiliates of an insurer that, if not remedied promptly, is likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole. The Revised Model Holding Company Act and Regulation have been substantively adopted in each of our operating insurance subsidiaries' domiciliary states.

        In 2012, the NAIC adopted the Risk Management and Own Risk and Solvency Assessment ("ORSA") Model Act, which has been substantively adopted in each of our operating insurance subsidiaries' domiciliary states. The ORSA Model Act requires insurers or their insurance group to conduct an ORSA consistent with a process comparable to the NAIC ORSA Guidance Manual no less than annually and at any time when there are significant changes to the risk profile of the insurer or the insurance group of which the insurer is a member. An ORSA is a confidential internal assessment, appropriate to the nature, scale and complexity of an insurer or insurance group, conducted by that insurer or insurance group of the material and relevant risks associated with the insurer or insurance group's current business plan, and the sufficiency of capital resources to support those risks. The assessments must be documented in an annual summary report, a copy of which must be submitted to state insurance regulators as required under the applicable laws of each state.

        The NAIC is also developing a group capital assessment tool using an RBC aggregation methodology. The results of this effort are uncertain; however, it may result in an increase in the level of capital and liquidity required by insurance holding companies.

Corporate Governance Annual Disclosure Model Act

        The NAIC has adopted the Corporate Governance Annual Disclosure Model Act ("CGAD"). CGAD requires an annual filing by an insurer or insurance group that provides a detailed report on corporate governance structure and policies and procedures. Fairfax submitted its first CGAD filing in 2017 on behalf of all of its United States operating insurance subsidiaries with the Connecticut Insurance Department.

Terrorism Risk Insurance Act

        The Terrorism Risk Insurance Act of 2002, as amended ("TRIA"), established a program under which the U.S. federal government will share with the insurance industry the risk of loss from certain acts of terrorism certified as such by the Secretary of the Treasury. In early 2015, the program was extended through 2020. The most recent extension of TRIA (i) raised the threshold for the program to go into effect (the triggering event) from US$100 million in insured losses to US$200 million, in US$20 million increments starting in January 2016, (ii) increased the insurer deductible from 15% of the insurer's affiliated group's direct earned premium for the prior year from qualified property and casualty insurance lines to 20%, in 1% increments starting January 1, 2016, and (iii) increased the amount that insurers must cover as a whole through co-payments and deductibles, which is known in the industry as the aggregate retention. The aggregate retention amount will rise by US$2 billion per year to US$37.5 billion from US$27.5 billion, starting in 2016. TRIA is applicable to almost all commercial lines of property and casualty insurance but excludes commercial auto, burglary and theft, surety, professional liability and farm owners' multi-peril insurance. Insurers with direct commercial property and casualty insurance exposure in the United States are required to participate in the program and make available coverage for certified acts of terrorism. Federal participation will be triggered when the Secretary of Treasury certifies an act of terrorism.

        While the provisions of TRIA and the purchase of certain terrorism reinsurance coverage mitigate our exposure in the event of a large-scale terrorist attack, the risk of severe losses to us from acts of terrorism remains because our effective deductible is significant, certain lines that we write are not covered by TRIA and there is no certainty that future terrorism acts will be certified as such by the Treasury Secretary. Moreover,

45

regardless of TRIA, some state insurance regulators do not permit terrorism exclusions for various coverages or causes of loss. Accordingly, we continue to monitor carefully our concentrations of risk.

Possible Legislative and Regulatory Changes

        In recent years, the insurance industry has been subject to increased scrutiny by regulators and legislators. As noted above, the NAIC and a number of state legislatures have considered or adopted legislative proposals that alter and, in many cases, increase the authority of state regulators to regulate insurance companies and holding company systems. Additional regulations or new requirements may emerge from activities of various regulatory entities, including the Federal Reserve Board, FIO, the Financial Stability Oversight Council, and the NAIC. We cannot predict whether any specific state or federal measures will be adopted to change the nature or scope of the regulation of insurance or what effect any such measures would have on Fairfax and its United States operating insurance subsidiaries.

        Finally, the ongoing investigations discussed above of insurance industry business practices may result in new laws or regulations at the state or federal level. See "Risk Factors — Certain business practices of the insurance industry have been the subject of negative publicity and investigations by government authorities and the subject of class action litigation".

        It is not possible to predict the outcome of any of the foregoing legislative, administrative or congressional activities or the potential effects thereof on us.

Canada

General

        Each of our Canadian insurance subsidiaries is federally incorporated under the Insurance Companies Act ("ICA") and is licensed under insurance legislation in each of the provinces and territories in which it operates.

        The ICA and provincial legislation require the filing by our Canadian insurance subsidiaries of annual and other reports on their financial condition and results. The ICA imposes restrictions on transactions with related parties and sets forth requirements governing reserves for actuarial liabilities and the safekeeping of assets and other matters. The ICA is administered, and the activities of our insurance subsidiaries are supervised, by the Office of the Superintendent of Financial Institutions ("OSFI"). OSFI conducts examinations to ensure compliance with the ICA and to confirm the financial condition of the companies.

Investment Powers

        Under the ICA, the directors of a federally incorporated insurance company must establish and the insurance company must adhere to investment and lending policies, standards and procedures that a reasonable and prudent person would apply to a portfolio of investments and loans to avoid undue risk of loss and obtain a reasonable return, subject to certain overall limitations on the amount it may invest in certain classes of investments, such as commercial loans, real estate and equities. Additional restrictions (and in some cases, the need for regulatory approvals) limit the nature of an insurance company's investments.

Capital Requirements

        Property and casualty insurers are required to meet a Minimum Capital Test ("MCT") that assesses the insurer's capital available to capital required. Federally regulated property and casualty insurers, including our Canadian insurance subsidiaries, must maintain available capital equal to at least the minimum capital requirement. OSFI expects insurers to establish a target capital level above the minimum requirement, and to maintain ongoing capital, at no less than the supervisory target of 150% of the MCT amount. OSFI expects federally regulated property and casualty insurers to establish an internal target capital ratio, and maintain ongoing capital, above the supervisory target. OSFI may, however, on a case-by-case basis, establish in consultation with an insurer an alternate supervisory target based upon the company's risk profile. The ICA requires property and casualty insurance companies to maintain adequate levels of capital and adequate and appropriate liquidity. The MCT calculates the required capital by reference to, and varying with, the risk characteristics of each category of on and off-balance sheet assets held by the company, the company's policy

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liabilities and reinsurance receivable and recoverable. This MCT calculation typically requires the application of quantitative factors to assets, as well as to certain off-balance sheet items, based on a number of prescribed risk components. The calculation of policy liabilities takes into account the risk associated with variations in claims, provisions, possible inadequacy of provisions for unearned premiums, possible inadequacy of provisions for premium deficiencies, and the occurrence of catastrophes. The calculation of reinsurance receivable and recoverable includes the risk of default for recoverables from reinsurers arising from both credit and actuarial risk.

Restrictions on Dividends and Capital Transactions

        The ICA prohibits the declaration by the directors of a federally incorporated insurance company, or the payment by the insurance company, of any dividend on shares of an insurance company if there are reasonable grounds to believe the company is, or the payment of the dividend would cause the company to be, in contravention of applicable capital and liquidity requirements. The ICA also requires the directors of an insurance company to notify the Superintendent of Financial Institutions of the declaration of a dividend at least 15 days prior to the date fixed for its payment. Similarly, the ICA prohibits the purchase for cancellation of any shares issued by an insurance company or the redemption of any redeemable shares or other similar capital transactions, if there are reasonable grounds for believing that the company is, or the payment would cause the company to be, in contravention of its applicable capital and liquidity requirements. These latter transactions would also require the prior approval of the Superintendent of Financial Institutions.

Constraints on Shares

        The ICA contains certain restrictions on the purchase or other acquisition, issue, transfer and voting of any shares of an insurance company. Pursuant to these restrictions, no person is permitted to acquire shares of any of our Canadian insurance subsidiaries, or to acquire control of a company which holds such an interest, if the acquisition would cause the person to have a "significant interest", or increase an existing "significant interest", in any class of shares of the insurance company, unless the prior approval of the Minister of Finance (Canada) is obtained. In addition, no insurance company is permitted to record any transfer or issue of its shares if the transfer or issue would cause the person to have a significant interest, or increase an existing significant interest, in the insurance company and such interest or increase has not been approved by the Minister of Finance (Canada). No person who has a significant interest in such a company may exercise any voting rights attached to the shares held by such person, or entities controlled by that person, unless the prior approval of the Minister of Finance (Canada) is obtained. In certain cases, if a person contravenes any of these restrictions, the Minister of Finance (Canada) may, by order, direct that person to dispose of all or any portion of those shares. For these purposes, a person has a significant interest in a class of shares of an insurance company where the aggregate of any shares of that class beneficially owned by that person, or an entity controlled by that person and by any person associated or acting jointly or in concert with that person, exceeds 10% of all outstanding shares of that class of shares of the company.

Provincial and Territorial Insurance Regulation

        Each of our insurance subsidiaries is subject to provincial and territorial regulation and supervision in each of the provinces and territories of Canada in which it carries on business. Provincial insurance regulations deal primarily with the form and content of insurance contracts, the sale and marketing of insurance products, including licensing and supervision of insurance distributors, and the settlement of insurance claims. In the provinces of Alberta, Ontario, New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island premium rates for automobile insurance are regulated by public authorities. They require insurers to submit proposed rates to a regulatory body and have them approved before use. While Québec has a public auto insurance system for its base coverage, rates for excess insurance must be approved by the provincial insurance regulator. The approval process may also involve a hearing. Under provincial regulation, insurance contracts are deemed automatically to include certain terms that cannot be changed without the approval of the relevant regulatory authority, as well as certain terms that cannot be changed without statutory or regulatory amendment.

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Property and Casualty Insurance Compensation Corporation ("PACICC")

        PACICC was formed to respond to claims by Canadian policyholders and refund certain premiums paid in advance, within limits, in the event of the insolvency of their insurance company. The Canadian property and casualty insurance industry elects the directors of PACICC. PACICC is funded by its member insurance companies, including our Canadian property and casualty insurance subsidiaries.

United Kingdom

General

        We are subject to regulation and supervision by the Prudential Regulation Authority ("PRA") and the Financial Conduct Authority ("FCA") in relation to the carrying on by certain of our operating subsidiaries of regulated activities in the United Kingdom. We are also subject to regulatory standards set by Lloyd's of London by way of our operations in the Lloyd's market.

        Our U.K. operating subsidiaries include the following Lloyd's managing agents:

•

Brit Syndicates Limited, which is the managing agent for Brit UW Limited. Brit UW Limited is a member of Lloyd's and the sole member of Syndicate 2987;

•

Newline Underwriting Management Limited, which is the managing agent of Syndicate 1218;

•

Advent Underwriting Limited, which is the managing agent of Syndicate 780;

•

RiverStone Managing Agency Limited, which is the managing agent of Syndicate 3500; and

•

Allied World Managing Agency Limited, which is the managing agent of Syndicate 2232.

        We also operate in the U.K. through a branch of Allied World Assurance Company (Europe) dac, an Irish insurance company registered with the Central Bank.

U.K. Regulatory Framework

Dual-regulation by PRA and FCA

        The PRA and the FCA are the regulators for persons authorized under the Financial Services and Markets Act 2000 ("FSMA") to undertake regulated activities in the financial services sector in the U.K. The PRA oversees and is responsible for the micro-prudential regulation of banks, insurers and some large investment firms. The FCA is responsible for conduct of business regulation for all authorized firms, market regulation and the prudential regulation of firms not authorized by the PRA.

        Each of the Lloyd's managing agents referred to above is authorized and regulated by the PRA as well as having its conduct of business regulated by the FCA and is, therefore, considered a dual-regulated firm. The PRA and the FCA have extensive powers to supervise and intervene in the affairs of regulated firms, for example, if they consider it appropriate in order to protect policyholders against the risk that the firm may be unable to meet its liabilities as they fall due, that the Threshold Conditions (described in greater detail below) may not be met, that the firm or its parent has failed to comply with obligations under the relevant legislation or rules, that the firm has furnished them with misleading or inaccurate information or that there has been substantial departure from any proposal or forecast submitted to the relevant regulator.

        The PRA and the FCA also have the power to take a range of disciplinary and enforcement actions in relation to a breach by a firm of FSMA or the rules made under FSMA as set out in the PRA Rulebook and other guidance and supervisory statements that the PRA may publish from time to time (the "PRA Rulebook") and in the FCA Handbook of Rules and Guidance (the "FCA Rulebook"), respectively. Such disciplinary and enforcement actions may include private censure, public censure, restitution, fines or sanctions and the award of compensation. The PRA (or, where relevant, the FCA) may also cancel or vary (including by imposing limitations on) a Part 4A permission (described in greater detail below) of a firm.

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Lloyd's of London

        The Society of Lloyd's is itself authorized by the PRA and regulated by the PRA and the FCA and its senior personnel are required to be approved by the regulators. Lloyd's regulated activities include arranging deals in contracts of insurance written at Lloyd's ("the basic market activity"), arranging deals in participations in Lloyd's syndicates ("the secondary market activity") and carrying out any activity in connection with, or for the purposes of, these two activities (article 14 of the Financial Services Act 2012 (Transitional Provisions) (Permission and Approval) Order 2013). The EU Insurance Directives (described in greater detail below) apply to Lloyd's as an insurance undertaking but with specific provision for the Lloyd's market.

        The Council of Lloyd's is the governing body of the Lloyd's market and under the Lloyd's Act 1982 (the "1982 Act") it is responsible for the management and supervision of the Lloyd's market. Under the 1982 Act, the Council has the power to regulate and direct the business of the market, and to make by-laws. Lloyd's market rules are set out in the by-laws, and in other guidance, codes of conduct and bulletins issued by the Council or under its authority, although regulation of the Lloyd's market is under the ultimate direction of the PRA and the FCA.

        Lloyd's does not carry on insurance activity itself, but regulates its members doing so. Members of Lloyd's form and underwrite all insurance business via syndicates which consist of one or more such members. Lloyd's supervises its own members (including in relation to setting the amount of capital required to be provided by each member to support its underwriting liabilities) under the direction of the PRA and the FCA. Members are not required to be authorized under FSMA but must abide by the Lloyd's rules which means that they are indirectly regulated by the PRA and the FCA given that Lloyd's itself is a dual-regulated firm. Under sections 316 and 318 of FSMA, the PRA and the FCA can give directions to Lloyd's or its members in order to advance one or more of their statutory objectives, for example by imposing particular rules on members. Lloyd's has a memorandum of understanding with the PRA and the FCA to assist with cooperation in supervision and enforcement.

        As regards prudential requirements, the rules in the Solvency II Firms section of the PRA Rulebook apply to Lloyd's and its managing agents as a whole with some modifications (see "— Regulation of Lloyd's Managing Agents — Prudential and capital requirements" below).

        Syndicates are managed by managing agents who are authorized by the PRA and regulated by the PRA and the FCA.

Regulation of Lloyd's Managing Agents

Part 4A Permissions

        Under section 19 of FSMA, it is unlawful to carry on the regulated business of being a Lloyd's managing agent in the U.K. without permission to do so from the PRA under Part 4A of FSMA. A Lloyd's managing agent will hold permissions for managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's, and usually also for insurance mediation activities such as dealing as agent, arranging, advising on investments, and assisting in the administration and performance of contracts of insurance. Each of the above managing agents holds permission for managing the underwriting capacity of a Lloyd's syndicate and one or more of the insurance mediation activities.

        At the point of authorization (on the granting of Part 4A Permissions) and at all times thereafter, managing agents must meet specified Threshold Conditions which are set out in Schedule 6 of FSMA.

        The PRA and the FCA have their own sets of Threshold Conditions and, as dual-regulated firms, the managing agents must comply with both. The Threshold Conditions relate to matters including the adequacy of the firm's financial and other resources and whether a firm is a fit and proper person to conduct its regulated activities, having regard to all the circumstances (including whether the firm's affairs are conducted soundly and prudently).

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        When granted, a Part 4A Permission will specify: (i) a description of the activities the managing agent can carry on, including any limitations on the scope of the permission; (ii) the specified investments to which the permission relates; and (iii) requirements imposed in relation to the permission to require the firm to take, or to refrain from taking, specified action. These requirements may relate to a range of matters, including the scope of a firm's business, capital, liquidity and interactions with affiliates. Once authorized, in addition to continuing to meet the Threshold Conditions, managing agents must comply with the requirements of the PRA Rulebook and FCA Handbook which apply to them.

        Additionally, a managing agent needs the permission of the Lloyd's Franchise Board to manage a syndicate.

        A managing agent must also obtain prior approval from the PRA or the FCA (depending on the function in question) for any individual who carries on one or more specified "controlled functions", such as executive or non-executive directors and persons responsible for risk management, internal audit or compliance. The controlled functions of managing agents specified by the PRA are known as senior insurance management functions ("SIMFs"), and those specified by the FCA are known as significant influence functions ("SIFs"). The relevant regulator will only approve an individual if it is satisfied that such individual is "fit and proper" to perform the controlled function in question, including the person's honesty, integrity and reputation, competence and capability for the roles that the person is to assume in the firm and his or her financial soundness. The PRA and/or FCA's assessment of fitness and propriety often includes an interview of the candidate to perform a controlled function. In addition, managing agents must file notifications to the PRA for any individuals who hold key functions but are not SIMF or SIF holders. Key functions include, generally, any function that is of specific importance to the sound and prudent management of the firm. Key function holders who are not also SIMF or SIF holders do not require regulatory pre-approval.

        The managing agents must carry out ongoing assessment of fitness and propriety in relation to all their key function holders (including the SIMF and SIF holders). They must also require key function holders to comply with the Conduct Standards set out in the PRA Rulebook ("Conduct Standards") or the Statements of Principle and Code of Practice for Approved Persons ("APER") set out in the FCA Handbook, as appropriate. The PRA and/or the FCA can take disciplinary action against individuals who breach the Conduct Standards or APER, or any other relevant provisions of the PRA Rulebook and the FCA Handbook.

        The requirement on firms to certify the fitness and propriety of their employees is likely to be expanded with the introduction of a new certification regime applicable in respect of any employees performing a "significant-harm function". This is anticipated to come into effect in December 2018. These employees will also be subject to the Conduct Standards or APER, as appropriate.

Prudential and capital requirements

        In summary, there are three parts to the "chain of security" that underpins the capital structure of Lloyd's:

(i)

Syndicate level assets:    The insurance premiums which are collected by members and held in a premium trust fund for the benefit of policyholders whose contracts are underwritten by the syndicate. These monies are the first resource used for paying claims made by the members' policyholders from that syndicate.



(ii)

Funds at Lloyd's:    Each member must provide capital to support its underwriting at Lloyd's. This capital is held in trust as a buffer to back up each member's underwriting liabilities in each syndicate in which it is a member. The amount of capital to be provided by each member is determined by the rules on the Solvency Capital Requirement ("SCR") contained in the Solvency II Firms section of the PRA Rulebook, which apply to Lloyd's and to its managing agents. Lloyd's requires managing agents to determine the SCR on an ultimate basis ("uSCR") for each syndicate they manage (described in greater detail below). Lloyd's then applies an "Economic Capital Uplift" to each uSCR (which Lloyd's set at 35% for the 2018 underwriting year of account) and the resulting figure is used to calculate each member's capital resources requirement in proportion to its share of each syndicate of which it is a member.



(iii)

Mutual assets (Central Fund and callable layer):    Members make annual contributions to the Central Fund which can be used to pay out in relation to the claims against any member who fails to meet its

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insurance liabilities in full. In addition, this is supplemented by a "callable layer" of up to 3% of members' overall premium limits which the Society can call upon to meet claims.

        When calibrating the SCR Lloyd's is required to include, in addition to the risks impacting its members, all quantifiable risks to which Lloyd's itself is exposed, including risks to its central assets and central liabilities. Lloyd's and its managing agents must also comply with requirements to conduct own risk and solvency assessments ("ORSA") and to report, as set out in, respectively, the Conditions Governing Business and the Reporting parts of the Solvency II Firms section of the PRA Rulebook.

        As dual-regulated firms in their own right, managing agents are under an obligation to manage the syndicate assets and the insurance business carried on by members of the syndicate in accordance with the Solvency II Firms section of the PRA Rulebook. This requires managing agents to ensure that the financial resources for each syndicate they manage and the capital resources at syndicate level are adequate, and that they establish and maintain systems and controls for the management of prudential, credit, market, operational and insurance risks for each syndicate.

        Managing agents must calculate capital resources at syndicate level under the rules in the Solvency II Firms section of the PRA Rulebook and, in particular, must calculate an SCR for each syndicate (which captures the risks that will emerge over the next 12 months) and a uSCR (to capture potential adverse developments which may arise until all liabilities have been paid). The SCR and uSCR take into account the risks, controls and financial resources available to each syndicate, and are notified to Lloyd's periodically.

        Managing agents are also subject to their own regulatory capital requirements, comprising both a minimum qualifying capital requirement and minimum net asset requirement.

Conduct of Business

        The FCA's conduct of business requirements for managing agents can be found in the Insurance Conduct of Business Sourcebook of the FCA Handbook ("ICOBS"). These rules regulate the day-to-day conduct of business standards to be observed by managing agents involved in insurance mediation activities and/or the activity of managing the underwriting capacity of a Lloyd's syndicate. Although the scope and range of obligations imposed by the ICOBS rules vary according to the scope of the firm's business and the nature of its clients, generally the rules include the need to provide clients with information about the firm, meet certain standards of product disclosure, ensure that promotional materials are clear, fair and not misleading, assess suitability when advising on certain products, manage conflicts of interest, report appropriately to clients and provide certain protections in relation to client assets. The rules in ICOBS will be amended to implement the Insurance Distribution Directive in the U.K., including as regards new remuneration disclosure and product governance requirements. The Insurance Distribution Directive was due to come into effect on February 23, 2018, but its coming into effect is expected to be delayed until October 1, 2018. The delay is subject to approval by both the European Council and European Parliament.

        The FCA's conduct of business requirements also apply to the U.K. operations of Allied World Assurance Company (Europe) dac.

Customer complaints and compensation

        Lloyd's itself and managing agents are under the compulsory jurisdiction of the Financial Ombudsman Service ("FOS") which has been set up under FSMA. Authorized firms must have appropriate complaints handling procedures but, where these are exhausted, the FOS provides for dispute resolution in respect of complaints brought by eligible complainants against applicable firms.

        The FOS is available to eligible customers in addition to their right to bring a claim in the courts. If the FOS determines a dispute in favour of a customer, it has the power to order a firm to pay fair compensation for any loss or damage it caused to the customer, or to direct a firm to take such steps in relation to the customer as the FOS considers just and appropriate, irrespective of whether a similar award could be made by a court. The FOS is funded by levies and case fees payable by firms covered by the FOS.

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        The Financial Services Compensation Scheme ("FSCS") is established under FSMA and provides compensation to certain categories of customers who suffer losses as a consequence of the inability of a regulated firm to meet its liabilities arising from claims made in connection with regulated activities. The FSCS is funded by means of levies on all of its participating financial services firms, including Lloyd's. Lloyd's pays members' and managing agents' contributions to the FSCS out of the central fund (up to the first £10 million of levy charges, although this figure is reviewed on an annual basis).

Money laundering and other financial crime

        All FSMA authorized firms are required to undertake certain administrative procedures and checks, which are designed to prevent money laundering. The FCA Handbook contain rules which require firms to take reasonable care to establish and maintain effective systems and controls for countering the risk that the firm might be used to further financial crime. For these purposes, financial crime includes any offence involving fraud or dishonesty, misconduct in, or misuse of information relating to, a financial market or handling the proceeds of crime, as well as bribery and corruption offences. One of the FCA's statutory objectives is to protect and enhance the integrity of the U.K. financial system which includes, among other things, reducing the opportunity for the U.K. financial system to be used for purposes connected with financial crime.

Qualifying parent undertaking

        The PRA and the FCA have the power, in certain circumstances, to give directions to certain "qualifying parent undertakings" of U.K. authorized firms even where those parent undertakings are not themselves regulated, provided that the parent undertaking is incorporated in the U.K. or has a place of business in the U.K. This power of direction allows the PRA or the FCA to direct the parent to take or refrain from taking specified action or to remedy past actions in prescribed circumstances.

Change of control of authorized firms

        Under section 178 of FSMA, if a person intends to acquire or increase "control" over a PRA-authorized firm (including a Lloyd's managing agent), it must first notify and get prior approval from the PRA before becoming a "controller" or increasing its level of control above certain thresholds. A person must also notify the PRA when the transaction which results in this acquisition or increase of control takes place.

        A proposed "controller" for the purposes of the change of control regime is any natural or legal person or such persons "acting in concert" who decides to acquire or increase, directly or indirectly, his, her or its control over a U.K. authorized firm.

        "Control" over a U.K. authorized firm is acquired if the acquirer:

(i)

holds 10% or more of the shares or voting rights in that company or in its (direct or indirect) parent undertaking; or



(ii)

is able to exercise significant influence over the management of the firm by virtue of the acquirer's shares or voting power in the company or its (direct or indirect) parent undertaking.

        Increases of control of a PRA authorized firm require the consent of the PRA where they reach the thresholds of 20%, 30% and 50% of the shares or voting power in the firm or its parent. Reducing or proposing to reduce control below the relevant threshold also gives rise to an obligation to notify the PRA.

        Breach of the notification and approval regime is a criminal offence.

        The approval of the Lloyd's Franchise Board is also required in relation to the change of control of a Lloyd's managing agent or member. Broadly, Lloyd's applies the same tests in relation to control as are set out in FSMA and, in practice, coordinates its approval process with that of the PRA.

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Other Relevant Issues for the Insurance Sector in the United Kingdom

Passporting

        The financial regulatory framework within the U.K. is shaped by Single Market directives emanating from the European Union ("Single Market directives"). These Single Market directives are written at a high level and set minimum standards that each of the states of the European Economic Area ("EEA") have to implement into national legislation. Firms authorised in an EEA state to carry on activities regulated under one of the Single Market directives are entitled to carry on those regulated activities in any other EEA state without needing to become directly authorised by the regulator of the host EEA state. This is known as "passporting", and can involve either the setting up of an establishment in the host EEA state or the provision of cross-border services. The Solvency II Directive, under which our Lloyd's managing agents are authorised, is a Single Market directive.

        Brit Syndicates Limited has notified and obtained permission from the PRA to exercise its rights to passport out of the U.K. and into another EEA states. Similarly, Allied World Assurance Company (Europe) dac uses its passporting rights to operate in the U.K. through a branch and by providing services on a cross-border basis.

        On March 29, 2017, the U.K. notified the European Council of its intention to leave the European Union. This notification triggered a two-year withdrawal process under article 50 of the Treaty of the European Union. Whether insurance firms retain their rights to passport out of and in to the U.K. will depend on the outcome of ongoing negotiations between the U.K. and the European Union. Possible outcomes range from the continued application of the Single Market directives in the U.K., either permanently or during a transitional period, or the agreement of special bilateral treaties between the U.K. and the European Union, through to the loss of free access by U.K. and EEA firms to each others' markets. In the latter scenario, a U.K. firm seeking to do business within the EEA may have to set up a fully authorised and regulated subsidiary in an EEA state. The reverse may apply to EEA firms seeking to do business in the U.K.

Ogden Tables

        Our insurance business in the UK includes insurance of liability for personal injury. Where a personal injury claim is determined or settled with a lump sum payment, the payment is calculated in accordance with the "Ogden Tables". The Ogden Tables contain a discount rate that is set by the U.K. government and is applied when calculating the present value of loss of earnings for claims settlement purposes. A change in the discount rate used in the Ogden Tables impacts all relevant claims settled after that date, regardless of whether the insurance to which the claim relates was priced on that basis or not (or occurred after that date or not). A reduction in the Ogden discount rate increases lump sum payments to personal injury claimants, and in consequence the amount of reserves held by insurers in relation to outstanding claims. The Ogden discount rate was reduced from 2.5% to 0.75% with effect from March 20, 2017, resulting in large increases in the amount of insurance reserves held for some claims. The U.K. Government has proposed to introduce a new framework to determine the Ogden discount rate, which may lead to further change in the rate.

Data protection

        The Data Protection Act 1998 ("1998 Act"), which came into force on March 1, 2000, regulates in the U.K. the obtaining and use of personal data relating to living individuals. The 1998 Act gives effect to an EU Directive. Personal data includes any data about an individual (including, for example, a name, address, age or medical or financial details), provided that he or she can be identified from those data alone or in connection with other information which the data controller possesses. The data need not in any sense be private. The 1998 Act applies to both computerized data and to certain sets of manual data such as address books and filing systems. It lays down certain principles which, in general, must be followed by those who hold personal data. Fairfax and everyone working in its applicable businesses must comply with it. Breach of the 1998 Act may give rise to criminal or civil liability and other enforcement action can be taken. The 1998 Act was replaced by the EU's General Data Protection Regulation ("GDPR") from May 25, 2018. GDPR introduces, among other substantial changes, the requirement for businesses to perform data protection impact assessments, and a new right for data subjects to data portability. It also grants increased enforcement powers to national data protection authorities.

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Bermuda

General

        Our insurance and reinsurance business in Bermuda is subject to the Bermuda Insurance Act 1978 (the "Bermuda Insurance Act"). The Bermuda Insurance Act imposes solvency and liquidity standards as well as auditing and reporting requirements on Bermuda insurers and reinsurers. It also empowers the Bermuda Monetary Authority ("BMA") to supervise, investigate and intervene in the affairs of these entities. There are a number of remedial actions available to the BMA in order to protect the public interest if the BMA determines that a Bermuda insurer or reinsurer may become insolvent or that a breach of the Bermuda Insurance Act or of any of the conditions of registration on a Bermuda insurer or reinsurer has occurred or is about to occur.

        In addition to maintaining a principal office in Bermuda and appointing specified officers, the summary below comprises the material aspects of the insurance regulatory framework in Bermuda with which our Bermuda insurers and reinsurers must comply.

Solvency and Capital Standards

        Our Bermuda insurers and reinsurers must maintain a minimum solvency margin and hold available statutory economic capital and surplus equal to or in excess of their "enhanced capital requirement" and "target capital level" as determined by the BMA under the Bermuda Solvency Capital Requirement model (the "BSCR model"). The BSCR model is a risk-based capital model that establishes an enhanced capital requirement and total capital level by taking into account risk characteristics specific to an insurer's or reinsurer's business. The target capital level is measured as 120% of the enhanced capital requirement. Our Bermuda insurers and reinsurers are also required to maintain a minimum solvency margin that is equal to the greatest of:

(i)

US$100,000,000;



(ii)

50% of net premiums written;



(iii)

15% of net losses and loss expense reserves; and



(iv)

25% of the insurer's and reinsurer's enhanced capital requirement.

Eligible Capital and Liquidity

        Our Bermuda insurers and reinsurers are required to disclose the makeup of their capital under a "three-tiered capital system". Under this system, capital instruments are classified as either "basic" or "ancillary" capital, and are further classified into one of three tiers based on certain prescribed "loss absorbency" characteristics. The minimum and maximum thresholds of tier 1, 2 and 3 capital that may be used to support a company's minimum solvency margin, enhanced capital requirement and target capital level are determined in accordance with the BMA's rules. In addition, minimum liquidity must be maintained whereby the value of the applicable insurer's and reinsurer's relevant assets is not less than 75% of the amount of its relevant liabilities.

Dividends

        Our Bermuda insurers and reinsurers are prohibited from declaring or paying dividends during any financial year if the insurer or reinsurer is, or would after such dividend is paid be, in breach of its minimum solvency margin, minimum liquidity ratio or enhanced capital requirement. Our material Bermuda insurers and reinsurers must also receive BMA approval prior to declaring or paying, within any financial year, dividends in respect of more than 25% of their total statutory capital and surplus or reducing their total statutory capital by 15% or more. Additionally, under the Companies Act 1981 of Bermuda, no Bermuda company may pay a dividend if such company has reasonable grounds for believing that it is, or would after such dividend payment be, unable to pay its liabilities as they become due, or that the realizable value of its assets would thereby be less than its liabilities.

Code of Conduct

        Each of our Bermuda insurers and reinsurers must comply with the BMA's Insurance Code of Conduct, which prescribes the duties, standards, procedures and sound business principles with which all companies registered under the Bermuda Insurance Act must comply.

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DESCRIPTION OF THE NOTES

        As used under this heading "Description of the Notes", the terms "Fairfax", "Company", "we", "us" and "our" refer only to Fairfax Financial Holdings Limited, and not its subsidiaries. The Company issued the Initial Notes under an indenture, dated as of December 1, 1993, as supplemented and amended by the first supplemental indenture dated May 9, 2011 (the "Indenture"), among the Company, The Bank of New York Mellon, as successor U.S. trustee (the "United States trustee" or the "trustee"), and BNY Trust Company of Canada, as successor Canadian trustee (the "Canadian trustee" and, together with the United States trustee, the "trustees") in a private transaction that was not subject to the registration requirements of the Securities Act or the requirement to qualify the Initial Notes by prospectus or otherwise under Canadian securities legislation. The Company has agreed to offer to exchange the Initial Notes for a new issue of substantially identical debt securities (as previously defined as the Exchange Notes) registered under the Securities Act. The issuance of the Exchange Notes in this offering (together with any Initial Notes that are not tendered and accepted for purchase) will be limited to US$600 million. The Exchange Notes, together with any Initial Notes that remain outstanding after the closing of the Exchange Offer, are referred to herein as the "Notes".

        The Indenture provides that, in addition to the Notes, securities of other series may be issued under the Indenture without limitation as to aggregate principal amount. The securities of other series may have such terms and provisions not inconsistent with the Indenture as the Company may determine from time to time. The securities of any series issued under the Indenture, including the Notes, are referred to as "securities."

        The Notes bear interest from the date of issuance at the rate of 4.850% per annum, and will mature on April 17, 2028. Interest is payable in semi-annual installments in arrears on April 17 and October 17 each year (each, an "Interest Payment Date") to the persons in whose names the Notes are registered at the close of business on the preceding April 3 and October 3, respectively (whether or not a business day) (the "Regular Record Date").

        Interest is calculated on the basis of a 360-day year consisting of twelve 30-day months. Principal of and interest on the Notes is payable in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts.

        If any Interest Payment Date, maturity date or Redemption Date (as defined below) of a Note falls on a day that is not a business day, the required payment of principal, premium, if any, and interest will be made on the next succeeding business day as if made on the date that the payment was due and no interest will accrue on that payment for such period from and after that Interest Payment Date, maturity date or Redemption Date, as the case may be, to the date of that payment on the next succeeding business day. The term "business day" means any day, other than a Saturday or Sunday, which is not a day on which banking institutions in the City of New York are authorized or required by law or executive order to close.

        The Notes are not redeemable at the option of the holder prior to maturity and are not subject to any sinking fund.

        The following summary of certain provisions of the Indenture does not purport to be complete and is subject to, and qualified in its entirety by reference to, all of the provisions of the Indenture. Whenever reference is made to particular sections of the Indenture or terms that are defined therein, such sections or defined terms are incorporated herein by reference as a part of such summaries, which are qualified in their entirety by such reference. The Indenture is subject to the provisions of the Canada Business Corporations Act and accordingly is exempt from certain provisions of the U.S. Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), pursuant to Rule 4d-9 thereunder. References to accounting terms in the Indenture and in this summary, unless otherwise defined, have the meanings assigned to them in accordance with IFRS.

General

        The Notes are the Company's direct, unsecured obligations and rank equally and ratably with all of the Company's other unsecured and unsubordinated indebtedness from time to time outstanding. The Notes rank among themselves equally and ratably without preference or priority. The Notes would be structurally subordinated to all obligations of the Company's subsidiaries. The Notes would be effectively subordinated to any future secured indebtedness of the Company, to the extent of the assets securing such indebtedness.

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        As of September 30, 2018, the Company had approximately US$4.0 billion principal amount of total outstanding indebtedness, none of which is secured, and the Company's subsidiaries had approximately US$2.6 billion principal amount of total outstanding indebtedness, all of which would be structurally senior to the Notes.

        The Indenture permits the Company from time to time, without notice to or the consent of the holders of any series of securities issued under the Indenture, to create and issue further securities of the same series as the Notes, ranking pari passu with the Notes in all respects and having the same terms as the Notes (except for the issue date, issue price and initial Interest Payment Date following the issue date of such further notes) and so that such further notes shall be consolidated and form a single series with, and shall have the same terms as to status, redemption or otherwise as, the Notes; provided that such further notes will not be issued with the same CUSIP and/or ISIN numbers as the Notes unless such further notes are fungible with the Notes for U.S. federal income tax purposes.

        The Notes are issuable in minimum denominations of US$2,000 and integral multiples of US$1,000 in excess thereof.

        The Indenture does not contain any provisions that would limit the Company's ability to incur indebtedness or that would afford holders of Notes protection in the event of a highly leveraged or similar transaction involving the Company.

Optional Redemption

        The Notes are redeemable at any time prior to January 17, 2028 (the "Par Call Date"), at the option of the Company, in whole at any time or in part from time to time, on not less than 15 days' nor more than 60 days' prior notice to each registered holder, upon payment of a redemption price equal to the greater of:

(1)

100% of the principal amount of the Notes to be redeemed; or



(2)

the sum of the present values of the remaining scheduled payments of principal of and interest on such Notes that would be due if the Notes matured on the Par Call Date (not including any portion of such payments of interest accrued as of the Redemption Date) discounted to the Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 30 basis points (the "Make Whole Amount"),

plus, in each case, accrued and unpaid interest to, but excluding, the Redemption Date. The Company will pay any interest due on an Interest Payment Date that occurs on or prior to a Redemption Date to the registered holders of the Notes as of the close of business on the Regular Record Date immediately preceding that Interest Payment Date.

        The Notes are redeemable at any time on or after the Par Call Date, at the option of the Company, in whole at any time or in part from time to time, on not less than 15 days' nor more than 60 days' prior notice to each registered holder, upon payment of a redemption price equal to par, together with accrued and unpaid interest to the Redemption Date.

        For purposes of determining the Make Whole Amount, the following definitions apply:

        "Comparable Treasury Issue" means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the Notes from the applicable Redemption Date to the Par Call Date (the "Remaining Life") of the Notes to be redeemed that would be utilized at the time of selection, and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the Remaining Life of the Notes to be redeemed.

        "Comparable Treasury Price" means, with respect to any Redemption Date, (1) the average of five Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations or (2) if the Quotation Agent obtains fewer than five Reference Treasury Dealer Quotations, the average of any such Reference Treasury Dealer Quotations.

        "Quotation Agent" means the Reference Treasury Dealer appointed by the Company.

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        "Redemption Date" means any date fixed for redemption of Notes.

        "Reference Treasury Dealer" means (i) Merrill Lynch, Pierce, Fenner & Smith Incorporated (or its affiliates that are primary treasury dealers) and its successors; provided, however, that if the foregoing shall cease to be a primary United States Government securities dealer in the United States of America, the Company will substitute therefor another primary treasury dealer, and (ii) any other primary treasury dealer selected by the Company.

        "Reference Treasury Dealer Quotation" means, with respect to the Reference Treasury Dealer and any Redemption Date, the average, as determined by the Company, of the bid and asked prices for the Comparable Treasury Issue (expressed, in each case, as a percentage of its principal amount) quoted in writing to the Quotation Agent by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third business day preceding such Redemption Date.

        "Treasury Rate" means, with respect to any Redemption Date, the rate per annum equal to the semi-annual equivalent or interpolated (on a day-count basis) yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. The Treasury Rate will be calculated on the third business day preceding such Redemption Date.

        The Notes are also subject to redemption prior to maturity if certain changes in Canadian tax law occur. If such changes occur, the Notes may be redeemed at a redemption price of 100% of their principal amount, plus any interest accrued but not paid to but excluding the Redemption Date. See "— Redemption for Tax Reasons."

Payment of Additional Amounts

        All payments made by the Company under or with respect to the Notes will be made free and clear of, and without withholding or deduction for or on account of, any present or future tax, duty, levy, impost, assessment or other governmental charge imposed or levied by or on behalf of the Government of Canada or of any province or territory thereof or by any authority or agency therein or thereof having power to tax (hereinafter "Taxes"), unless the Company is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. If the Company is so required to withhold or deduct any amount for or on account of Taxes from any payment made under or with respect to the Notes, and the Notes are not redeemed in accordance with the provisions described under "— Redemption for Tax Reasons", the Company will pay as interest such additional amounts ("Additional Amounts") as may be necessary so that the net amount received by each holder of such Notes or the beneficial owner thereof (including Additional Amounts) after such withholding or deduction will not be less than the amount such holder or beneficial owner would have received if such Taxes had not been withheld or deducted; provided that no Additional Amounts will be payable with respect to: (a) any payment made to a holder of the Notes or beneficial owner who is liable for such Taxes in respect of such Notes (i) by reason of such holder or beneficial owner, or any other person entitled to payments on the Notes, being a person with which the Company does not deal at arm's length (within the meaning of the Income Tax Act (Canada) (the "Canadian Tax Act")), (ii) by reason of such holder or beneficial owner being a "specified shareholder" of the Company or not dealing at arm's length with a "specified shareholder" of the Company (as defined in subsection 18(5) of the Canadian Tax Act), (iii) by reason of the existence of any present or former connection between such holder or beneficial owner (or between a fiduciary, settlor, beneficiary, member or shareholder of, or possessor of power over, such holder or beneficial owner, if such holder or beneficial owner is an estate, trust, partnership, limited liability company or corporation) and Canada or any province or territory thereof or therein or agency thereof or therein other than the mere acquisition, holding, use or ownership or deemed holding, use or ownership, or receiving payments or enforcing any rights in respect of such Notes as a non-resident or deemed non-resident of Canada or any province or territory thereof or therein or agency thereof or therein, or (iv) by reason of such holder or beneficial owner's failure to comply with any certification, identification, documentation or other reporting requirements if compliance is required by law, regulation, administrative practice or an applicable treaty as a pre-condition to exemption from, or a reduction in the rate of deduction or withholding of, such Taxes; (b) any estate, inheritance, gift, sales, transfer, excise or personal property tax or any similar Taxes; (c) any Notes presented for payment more than 15 days after the date on which such payment or such Notes became due and payable or the date on which payment thereof is duly

57

provided for, whichever is later (except to the extent that the holder would have been entitled to such Additional Amounts had the Notes been presented on the last day of such 15-day period); (d) any withholding or deduction imposed on a payment to a holder or beneficial owner pursuant to Sections 1471 to 1474 of the U.S. Internal Revenue Code of 1986, as amended ("FATCA"), or any successor version thereof, or any similar legislation imposed by any other governmental authority or any Taxes or penalties that arise from the holder or beneficial owner's failure to properly comply with its obligations under the Canada-United States Enhanced Tax Information Exchange Agreement Implementation Act (Canada) or any treaty, law or regulation or other official guidance enacted by Canada implementing FATCA or an intergovernmental agreement with respect to FATCA or any similar legislation imposed by any other governmental authority, including, for greater certainty, Part XVIII and Part XIX of the Canadian Tax Act; (e) any Taxes which are payable otherwise than by withholding or deduction from any payment made under or with respect to the Notes or (f) any combination of the foregoing clauses (a) to (e); nor will such Additional Amounts be paid with respect to any payment on any Note to a holder or beneficial owner who is a fiduciary or partnership or, other than the sole beneficial owner of such Note, to the extent that a beneficiary or settlor with respect to such fiduciary, or a member of such partnership or a beneficial owner thereof would not have been entitled to receive a payment of such Additional Amounts had such beneficiary, settlor, member or beneficial owner received directly its beneficial or distributive share of such payment (collectively, "Excluded Taxes"). The Company will also (a) make such withholding or deduction and (b) remit the full amount deducted or withheld to the relevant authority in accordance with applicable law. Upon the written request of the trustee or a holder of Notes, the Company will furnish, as soon as reasonably practicable, to the trustee or such holder of Notes, as applicable, certified copies of tax receipts evidencing such payment by the Company. The Company will indemnify and hold harmless each holder of Notes and any beneficial owner thereof and, upon written request of any such holder or beneficial owner, reimburse such holder or beneficial owner for the amount of (i) any such Taxes (other than Excluded Taxes) so levied or imposed and paid by such holder or beneficial owner as a result of any failure of the Company to withhold, deduct or remit to the relevant tax authority, on a timely basis, the full amounts required under applicable law; and (ii) any such Taxes (other than Excluded Taxes) so levied or imposed with respect to any reimbursement under the foregoing clause (i), so that the net amount received by such holder or beneficial owner after such reimbursement would not be less than the net amount such holder or beneficial owner would have received if such Taxes (other than Excluded Taxes) on such reimbursement had not been imposed.

        Whenever in the Indenture there is mentioned, in any context, the payment of principal (and premium, if any), redemption price, interest or any other amount payable under or with respect to the Notes, such mention shall be deemed to include mention of the payment of Additional Amounts to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof.

Redemption for Tax Reasons

        In the event that the Company has become or would become obligated to pay, on the next date on which any amount would be payable under or with respect to the Notes, any Additional Amounts as a result of a change in the laws (including any regulations promulgated thereunder) or treaties of Canada (or any political subdivision or taxing authority thereof or therein), or any change in any official position regarding the application or interpretation of such laws, regulations or treaties, which change is announced or becomes effective on or after the date of issuance of the Notes, then the Company may at any time at the Company's option redeem the Notes, in whole, but not in part, at a redemption price equal to 100% of their principal amount, plus any interest accrued but not paid to but excluding the Redemption Date.

Selection and Notice of Redemption

        In the event that the Company chooses to redeem less than all of the Notes, selection of the Notes for redemption will be made by the trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by lot or by such other method in accordance with the depositary's procedures.

        No Notes of a principal amount of US$2,000 or less shall be redeemed in part. Notice of redemption of Notes held in non-global form represented by a definitive certificate will be mailed by first-class mail at least 15 days but not more than 60 days before the Redemption Date to each holder of Notes to be redeemed at its

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registered address. Notice of redemption of Notes held in the form of global certificates will be given to DTC in accordance with its applicable procedures at least 15 days but not more than 60 days before the Redemption Date. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Note.

        On and after the Redemption Date, interest will cease to accrue on Notes or portions thereof called for redemption as long as the Company has deposited with the paying agent funds in satisfaction of the applicable redemption price.

Certain Covenants

        Limitation on Liens on Capital Stock of Restricted Subsidiaries.    The Indenture provides that the Company may not, and may not permit any subsidiary to, create, assume, incur or suffer to exist any lien, other than a purchase money lien, upon any capital stock, whether owned on the date of the Indenture or thereafter acquired, of any restricted subsidiary, to secure any obligation (other than the securities issued under the Indenture) of the Company, any subsidiary or any other person, without in any such case making effective provision whereby all of the outstanding securities issued under the Indenture shall be directly secured equally and ratably with such obligation; provided, however, that this restriction will not apply to (i) liens on the capital stock of any restricted subsidiary securing obligations outstanding from time to time under any bank credit facility, provided that the principal amount of all such obligations secured by liens on the capital stock of any restricted subsidiary, at the time of each incurrence of any portion of any such obligation, does not exceed 15% of the sum of (A) the Company's consolidated shareholders' equity at the end of the Company's most recently completed fiscal quarter immediately preceding such incurrence for which financial statements are, or are required to be, available and (B) the aggregate principal amount of all obligations which are outstanding under any bank credit facility immediately after giving effect to such incurrence and which are secured by liens on the capital stock of a restricted subsidiary, and (ii) liens securing obligations from the Company to any wholly-owned restricted subsidiary or from any wholly-owned restricted subsidiary to the Company or any other wholly-owned restricted subsidiary. This provision will not restrict any other property of the Company or that of its subsidiaries.

        The Indenture defines "lien" as any mortgage, pledge, hypothecation, lien, encumbrance, charge or security interest of any kind; "obligation" as indebtedness for money borrowed or indebtedness evidenced by a bond, note, debenture or other evidence of indebtedness; "purchase money lien" as (i) any mortgage, pledge, hypothecation, lien, encumbrance, charge or security interest of any kind upon any capital stock of any restricted subsidiary acquired after the date of the Indenture if such purchase money lien is for the purpose of financing, and does not exceed, the cost to the Company or any subsidiary of acquiring the capital stock of such restricted subsidiary and such financing is effected concurrently with, or within six months after, the date of such acquisition, and (ii) any extension, renewal or refinancing of any purchase money lien so long as the principal amount of obligations secured thereby shall not exceed the original principal amount of obligations so secured at the time of such extension, renewal or refinancing; "restricted subsidiary" as any subsidiary that is a licensed insurance company, other than any licensed insurance company that the Company's board of directors, in good faith, determines is not, individually or together with any other licensed insurance company as to which a similar determination has been made, material to the business of the Company and its subsidiaries, considered as a whole; and "subsidiary" as a corporation or business trust, a majority of the outstanding voting stock of which is owned, directly or indirectly, by the Company or one or more other subsidiaries, or by the Company and one or more other subsidiaries. As of the date hereof, each of the Company's licensed insurance company subsidiaries is a restricted subsidiary.

        Waiver of Certain Covenants.    The Company may omit in any particular instance to comply with any term, provision or condition of the covenants described above if the holders of at least a majority in principal amount of all outstanding Notes issued under the Indenture and then outstanding waive compliance in such instance with such term, provision or condition.

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        Amalgamation, Consolidation, Merger, Conveyance, Transfer or Lease.    The Indenture provides that the Company shall not amalgamate or consolidate with or merge into any other corporation or convey, transfer or lease its properties and assets substantially as an entirety to any other person, unless, (i) the corporation formed by such consolidation or amalgamation or into which the Company is merged or the person which shall have acquired or leased such properties or assets (if other than the Company) shall be a corporation, partnership, company or trust organized and validly existing under the laws of Canada or any province thereof or the United States, any state thereof or the District of Columbia, and shall expressly assume by supplemental Indenture the Company's obligation for the due and punctual payment of the principal of (and premium, if any, on) and interest on all the outstanding securities issued under the Indenture, all other amounts payable by the Company pursuant to the Indenture and the performance and observance of every covenant of the Indenture on the Company's part to be performed or observed, (ii) immediately after giving effect to such transaction, no event of default or event that after notice or passage of time or both would be an event of default shall have occurred and be continuing and (iii) the Company has delivered to the trustee an officers' certificate and an opinion of counsel, each stating that such amalgamation, consolidation, merger, conveyance, transfer or lease, and supplemental indenture (if any), comply with this covenant and that all conditions precedent provided for in the Indenture relating to such transaction have been complied with.

        Available Information.    So long as the Notes are "restricted securities" within the meaning of Rule 144 under the Securities Act ("Rule 144"), and the Company is not subject to the reporting requirements of the Exchange Act, the Company will furnish to any holder of Notes, or to any prospective purchaser designated by such a holder, upon the request of the holder, the business and financial information concerning the Company called for under paragraph (d)(4) of Rule 144A.

Events of Default

        The following constitute events of default with respect to the Notes under the Indenture: (a) a default for 30 days in the payment of any interest on any Note; (b) a default in the payment of the principal of (or premium, if any, on) any Note when due; (c) a default in the performance, or breach, of any other covenant or warranty in the Indenture (other than a covenant or warranty included in the Indenture solely for the benefit of one or more series of securities other than the Notes) which default or breach continues for a period of 60 days after notice; (d) a default in the payment, at the stated maturity, of any outstanding indebtedness for money borrowed by the Company in excess of US$25,000,000 and continuing after any applicable grace period, which default shall not have been cured or waived, or the acceleration of indebtedness for money borrowed by the Company outstanding under or evidenced by any single Indenture or instrument in excess of US$25,000,000, if such indebtedness has not been discharged, or such acceleration has not been rescinded or annulled, within 10 days after written notice has been given by the trustee, or the holders of at least 25% in principal amount of the outstanding Notes, as provided in the Indenture; and (e) certain events of bankruptcy, insolvency or reorganization.

        If an event of default relating to a default in payment of principal of (or premium, if any, on) or interest on the Notes, or to a default in the performance, or breach, of any other covenant or warranty of the Company applicable to the Notes but not applicable to all outstanding securities issued under the Indenture, or to a default in the payment, at stated maturity, of, or to the acceleration of, any indebtedness for money borrowed shall have occurred and be continuing, the trustee or the holders of not less than 25% in principal amount of the Notes then outstanding may then declare the principal of all Notes to be due and payable immediately. If an event of default relating to a default in the performance, or breach, of any other covenant or warranty in the Indenture applicable to all securities issued thereunder and then outstanding shall have occurred and be continuing, the trustee or the holders of not less than 25% in principal amount of all securities issued under the Indenture and then outstanding (treated as one class) may declare the principal amount of all the securities then outstanding to be due and payable immediately. If an event of default described in clause (e) above shall occur, other than with respect to one of the Company's subsidiaries, the principal amount of all the securities will automatically, and without any action by the trustee or any holder, become immediately due and payable. In each case, the holders of a majority in principal amount of the outstanding Notes may under certain circumstances rescind and annul such declaration by written notice to the Company and the trustee. In the event of a declaration of acceleration because an event of default specified in clause (d) above has occurred and is

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continuing, such declaration of acceleration shall be automatically annulled if the indebtedness which is the subject of such event of default has been discharged or the holders thereof have rescinded their declaration of acceleration in respect of such indebtedness, and written notice of such discharge or rescission is given to the trustee by the Company and countersigned by the holders of such indebtedness or their representative, within 30 days after such declaration of acceleration in respect of the Notes, and no other event of default has occurred during such 30-day period which has not been cured or waived during such period.

        The holders of not less than a majority in principal amount of the outstanding Notes, in the case of an event of default applicable to such series but not to all outstanding securities, or a majority in principal amount of the outstanding securities of all series, in the case of an event of default applicable to all outstanding securities, may waive any past default and its consequences, except a default in respect of the payment of the principal of (or premium, if any, on) or interest on any security or in respect of a covenant or provision of the Indenture which cannot be modified or amended without the consent of the holder of each outstanding security affected thereby.

        The Indenture provides that the trustee shall be under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request or direction of holders of securities unless such holders shall have offered to the trustee reasonable funding, security and indemnity against the costs, expenses and liabilities which might be incurred by the trustee in compliance with such request or direction. Subject to such provisions for the indemnification of the trustee, the holders of not less than a majority in principal amount of the securities of any series (with respect to any remedy, trust or power relating to any default in payment of principal (or premium, if any, on) or interest on the securities of such series or any default in the performance or breach of any other covenant or warranty of the Company applicable to the securities of such series but not applicable to all outstanding securities issued under the Indenture) or the holders of not less than a majority in principal amount of all securities issued under the Indenture and then outstanding (treated as one class) (with respect to any other remedy, trust or power) shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee, or exercising any trust or power conferred on the trustee, with respect to such securities.

Discharge, Defeasance and Covenant Defeasance

        The Company may discharge certain obligations to holders of Notes which have not already been delivered to the trustee for cancellation and which have either become due and payable or are by their terms due and payable within one year by irrevocably depositing with the trustee trust funds in an amount sufficient to pay at maturity the principal of and interest on the Notes.

        The Company may, at its option, and at any time, elect to have its obligations discharged with respect to all outstanding Notes. This is referred to as "defeasance." Such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes and to have satisfied its other obligations with respect to the Notes under the Indenture, except for (i) the rights of the holders of outstanding Notes to receive, solely from the trust fund described below, payments in respect of the principal of (and premium, if any) and interest on such Notes when such payments are due, (ii) the Company's obligations with respect to the Notes relating to the issuance of temporary Notes, the registration, transfer and exchange of Notes, the replacement of mutilated, destroyed, lost or stolen Notes, the maintenance of an office or agency for payment of the Notes, and the holding of money for security payments in trust and statements as to compliance with the Indenture, (iii) the rights, powers, trusts, duties and immunities of the trustees under the Indenture and (iv) the defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to be released from its obligations with respect to certain of the covenants under the Indenture (including those described under "— Certain Covenants — Limitation on Liens on Capital Stock of Restricted Subsidiaries"), referred to as "covenant defeasance", and any omission to comply with such obligations shall not constitute a default or an event of default with respect to the Notes.

        In order to exercise either defeasance or covenant defeasance with respect to the Notes, (i) the Company must irrevocably deposit with the trustee, in trust, for the benefit of the holders of the Notes, cash in U.S. dollars, certain U.S. government obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of and

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interest on the outstanding Notes on the stated maturity (or Redemption Date, if applicable) of such principal or installment of interest; (ii) in the case of defeasance, the Company shall have delivered to the trustees an opinion of counsel in the United States stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (y) since the date of the offering memorandum for the Initial Notes, there has been a change in the applicable U.S. federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the holders of the outstanding Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; (iii) in the case of covenant defeasance, the Company shall have delivered to the trustees an opinion of counsel in the United States to the effect that the holders of the outstanding Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such covenant defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; and (iv) the Company must comply with certain other conditions.

Modification

        The Indenture provides that the Company and the trustees may enter into supplemental indentures without the consent of the holders of the Notes or the holders of the securities of any other series to: (a) evidence the succession of another person to the Company and the obligations assumed by such successor under the Indenture; (b) add to the Company's covenants for the benefit of the holders of the securities of any series or to surrender any right or power conferred upon the Company by the Indenture; (c) add events of default for the benefit of the holders of the securities of any series; (d) change or eliminate any provisions of the Indenture, provided that any such change or elimination shall become effective only when there is no security issued under the Indenture then outstanding of any series created prior thereto which is entitled to the benefit of such provision; (e) secure any series of securities; (f) establish the form and terms of any series of securities permitted to be issued under the Indenture; (g) evidence the acceptance of appointment by a successor trustee under the Indenture and provide for or facilitate the administration of one or more trusts under the Indenture by one or more trustees; (h) cure any ambiguity, correct or supplement any inconsistency or make any other modification, provided that such action does not adversely affect the interests of the holders of outstanding securities of any series in any material respect; and (i) supplement any of the provisions of the Indenture to the extent necessary to permit or facilitate the defeasance or discharge of any series of securities, provided such action does not adversely affect the interests of the holders of securities of any series in any material respect.

        The Indenture also contains provisions permitting the Company and the trustees, with the consent of the holders of not less than a majority in principal amount of all securities issued under the Indenture then outstanding and affected (treated as one class), to add any provisions to, change in any manner or eliminate any of the provisions of, the Indenture or modify in any manner the rights of the holders of securities under the Indenture; provided that the Company and the trustees may not, without the consent of the holder of each outstanding security affected thereby, among other things: (a) change the stated maturity of the principal of or any installment of interest on any security, (b) reduce the principal amount of or the rate of interest on, or premium payable upon the redemption of, any such security, (c) reduce the amount of the principal of an original issue discount security that would be due and payable upon a declaration of acceleration of the maturity thereof, (d) adversely affect any right of repayment at the option of the holder of any security, (e) change the place or currency of payment of principal of, or any premium or interest on, any such security, (f) impair the right to institute suit for the enforcement of any such payment on any security when due, (g) reduce the percentage in principal amount of securities of any series whose consent is necessary to modify or amend the Indenture or to waive compliance with certain provisions of the Indenture or certain defaults and their consequences or (h) modify the foregoing requirements, except to increase any percentage or to provide that certain provisions of the Indenture cannot be modified or waived without the consent of the holder of each outstanding security affected thereby.

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Enforceability of Judgments

        Since some of the Company's assets are in Canada, any judgment obtained outside of Canada against the Company, including any judgment with respect to the payment of principal or interest on the Notes may not be collectible outside of Canada.

        The Company has been informed by Torys LLP, counsel to the Company, that a court of competent jurisdiction in the Province of Ontario (an "Ontario Court") would give a judgment based upon a final and conclusive in personam judgment of a court exercising jurisdiction in the Borough of New York, The City of New York, State of New York (a "New York Court") for a sum certain, obtained against the Company, with respect to a claim arising out of the Indenture or the Notes (a "New York Judgment"), without reconsideration of the merits, provided that (i) an action to enforce the New York Judgment must be commenced in the Ontario Court within any applicable limitation period; (ii) the Ontario Court has discretion to stay or decline to hear an action on the New York Judgment if the New York Judgment is under appeal or there is another subsisting judgment in any jurisdiction relating to the same cause of action; (iii) the Ontario Court will render judgment only in Canadian dollars; (iv) an action in the Ontario Court on the New York Judgment may be affected by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally; and (v) an action in the Ontario Court on the New York Judgment would be subject to the following defenses: (A) the New York Judgment was obtained by fraud or in a manner contrary to the principles of natural justice but the New York Judgment would not be contrary to natural justice by reason only that service of process was effected on the agent for service of process appointed by the Company pursuant to the Indenture; (B) the New York Judgment is for a claim which under the laws of the Province of Ontario and the federal laws of Canada applicable therein would be characterized as based on a foreign revenue, expropriatory, penal or other public law; (C) the New York Judgment is contrary to Ontario public policy, as such term is interpreted under the laws of the Province of Ontario and the federal laws of Canada applicable therein, or to an order made by the Attorney General of Canada under the Foreign Extraterritorial Measures Act (Canada) or by the Competition Tribunal under the Competition Act (Canada) in respect of certain judgments referred to in these statutes; and (D) the New York Judgment has been satisfied or is void under the laws of the State of New York. In the opinion of such counsel, there are currently no reasons under the law of Ontario for avoiding recognition of said judgments of New York Courts under the Indenture or on the Notes based upon public policy. The Company has been advised by such counsel that a monetary judgment of a U.S. court predicated solely upon civil liability provisions of U.S. federal securities laws would likely be enforceable in Canada if the U.S. court in which judgment was obtained had a basis for jurisdiction that was recognized by a Canadian court for such purposes. The Company has also been advised by its counsel, that it is less certain that an original action could be commenced in Canada on the basis of liability predicated solely upon such laws.

Consent to Jurisdiction

        The Indenture provides that the Company has irrevocably appointed CT Corporation System, 111 Eighth Avenue, New York, New York 10011, as its authorized agent for service of process in any legal action or proceeding arising out of or relating to the Indenture and the Notes for actions brought under United States federal or state securities laws or for actions brought by either trustee or for any actions arising out of or related to the Indenture or the Notes in any New York Court, and has irrevocably submitted to the jurisdiction of the New York Courts for such purposes.

Governing Law

        The Indenture and the Notes are governed by and shall be construed in accordance with the laws of the State of New York.

Trustees, Paying Agent and Securities Registrar

        The Bank of New York Mellon of 240 Greenwich Street, Floor 7 East, New York, New York, 10286, U.S.A. currently acts as United States trustee, paying agent and securities registrar for the Notes.

        BNY Trust Company of Canada of 1 York St., 6th Floor, Toronto, Ontario, Canada, M5J 0B6 currently acts as Canadian trustee for the Notes.

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PRIOR SALES

        On April 17, 2018, the Company issued US$600,000,000 aggregate principal amount of Initial Notes, priced at 99.765% of the aggregate principal amount, resulting in gross proceeds of US$598.59 million.

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CERTAIN ERISA CONSIDERATIONS

General

        The U.S. Employee Retirement Income Security Act of 1974, as amended ("ERISA"), imposes certain requirements on employee benefit plans subject to Title I of ERISA and on entities that are deemed to hold the assets of such plans ("ERISA Plans"), and on those persons who are fiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA's general fiduciary requirements, including, but not limited to, the requirement of investment prudence and diversification and the requirement that an ERISA Plan's investments be made in accordance with the documents governing the plan.

        Section 406 of ERISA and Section 4975 of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), prohibit certain transactions involving the assets of an ERISA Plan (as well as those plans that are not subject to ERISA but which are subject to Section 4975 of the Code, such as individual retirement accounts (together with ERISA Plans, "Plans")) and certain persons (referred to as "parties in interest" or "disqualified persons") having certain relationships to such Plans, unless a statutory or administrative exemption is applicable to the transaction. A party in interest or disqualified person who engages in a prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code.

        Any Plan fiduciary which proposes to cause a Plan to acquire the Exchange Notes should consult with its counsel regarding the applicability of the fiduciary responsibility and prohibited transaction provisions of ERISA and Section 4975 of the Code to such an investment, and to confirm that such acquisition and holding will not constitute or result in a non-exempt prohibited transaction or any other violation of an applicable requirement of ERISA.

        Non-U.S. plans, governmental plans and certain church plans, while not subject to the fiduciary responsibility provisions of ERISA or the prohibited transaction provisions of ERISA and Section 4975 of the Code, may nevertheless be subject to non-U.S., or U.S. federal, state, local or other laws or regulations that are substantially similar to the foregoing provisions of ERISA and the Code ("Similar Law"). Fiduciaries of any such plans should consult with their counsel before acquiring the Exchange Notes to determine the need for, and the availability, if necessary, of any exemptive relief under applicable Similar Law.

Prohibited Transaction Exemptions

        The fiduciary of a Plan that proposes to acquire and hold any Exchange Notes should consider, among other things, whether such purchase and holding may involve (i) the direct or indirect extension of credit to a party in interest or a disqualified person, (ii) the sale or exchange of any property between a Plan and a party in interest or a disqualified person, or (iii) the transfer to, or use by or for the benefit of, a party in interest or disqualified person, of any Plan assets. Such parties in interest or disqualified persons could include, without limitation, the Company, the initial purchasers of the Initial Notes, the holders of senior debt securities of the Company, or any of their respective agents or affiliates. Depending on the satisfaction of certain conditions, which may include the identity of the Plan fiduciary making the decision to acquire or hold the Exchange Notes on behalf of a Plan, Section 408(b)(17) of ERISA or Prohibited Transaction Class Exemption ("PTCE") 84-14 (relating to transactions effected by a "qualified professional asset manager"), PTCE 90-1 (relating to investments by insurance company pooled separate accounts), PTCE 91-38 (relating to investments by bank collective investment funds), PTCE 95-60 (relating to investments by insurance company general accounts) or PTCE 96-23 (relating to transactions directed by an in-house asset manager) (collectively, the "Class Exemptions") could provide an exemption from the prohibited transaction provisions of ERISA and Section 4975 of the Code. However, there can be no assurance that any of these Class Exemptions or any other exemption will be available with respect to any particular transaction involving the Exchange Notes.

        By its acquisition of any Exchange Note, the acquirer thereof will be deemed to have represented and warranted that either:

(i)

no assets of a Plan or non-U.S., governmental or church plan have been used to acquire such Exchange Notes or an interest therein; or

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(ii)

the acquisition and holding of such Exchange Notes or an interest therein by such person do not constitute a non-exempt prohibited transaction under ERISA or Section 4975 of the Code or violation of Similar Law.

The foregoing discussion is general in nature. Due to the complexity of the applicable rules and penalties under ERISA, the Code and Similar Laws, each Plan fiduciary (and each fiduciary for non-U.S., governmental or church plans subject to Similar Law) should consult with its legal advisor concerning the potential consequences to the applicable Plan or plan under ERISA, Section 4975 of the Code or such Similar Laws of an investment in the Exchange Notes.

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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

        The exchange of Initial Notes for Exchange Notes will not be treated as a taxable transaction for U.S. Federal income tax purposes because the terms of the Exchange Notes will not be considered to differ materially in kind or in extent from the terms of the Initial Notes. Rather, the Exchange Notes you receive will be treated as a continuation of your investment in the Initial Notes. As a result, you will not recognize gain or loss upon the exchange of your Initial Notes for Exchange Notes. In addition, your basis and holding period in the Exchange Notes will be the same as your basis and holding period in the Initial Notes exchanged therefor.

IF YOU ARE CONSIDERING EXCHANGING YOUR INITIAL NOTES FOR EXCHANGE NOTES, YOU SHOULD CONSULT YOUR OWN TAX ADVISORS CONCERNING THE TAX CONSEQUENCES OF THE EXCHANGE ARISING UNDER STATE, LOCAL OR FOREIGN LAWS.

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PLAN OF DISTRIBUTION

        The Company issued the Initial Notes on April 17, 2018, pursuant to a private placement offering underwritten by Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., J.P. Morgan Securities LLC and RBC Capital Markets, LLC. If all the conditions of the Exchange Offer are satisfied, the Company will exchange all Initial Notes that are validly tendered and not validly withdrawn for an equal principal amount of Exchange Notes that have been registered under the Securities Act.

        Any broker-dealer that resells or transfers Exchange Notes that were received by it for its own account pursuant to the Exchange Offer in exchange for Initial Notes acquired by such broker-dealer as a result of market-making or other trading activities and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act, and any profit of any such resale or transfer of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. Accordingly, each such broker-dealer must acknowledge that it will deliver, and must deliver, a prospectus meeting the requirements of the Securities Act in connection with any resale or transfer of such Exchange Notes. The letter of transmittal states that by acknowledging that it will deliver, and by delivering, such a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act.

        This short form prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales or transfers of Exchange Notes received in exchange for Initial Notes where such Initial Notes were acquired as a result of market-making or other trading activities. The Company has agreed to make this short form prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale or transfer for a period ending on the earlier of (i) 180 days after the date on which the registration statement relating to the Exchange Offer is declared effective by the SEC and (ii) the date on which participating broker-dealers are no longer required to deliver a prospectus in connection with market-making or other trading activities.

        The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Notes.

        For a period of 180 days after the expiration of the Exchange Offer or, if shorter, for a period ending on the date on which a broker-dealer is no longer required to deliver a prospectus in connection with market-making or other trading activities, the Company will promptly send additional copies of this short form prospectus and any amendment or supplement to this short form prospectus to any broker-dealer that requests such documents in the letter of transmittal. The Company has agreed to (i) pay all expenses incident to the Exchange Offer, other than (a) commissions or concessions of any brokers or dealers, (b) in certain circumstances described under "The Exchange Offer — Terms of the Exchange Offer — Fees and Expenses", transfer taxes and (c) any other taxes you may incur; and (ii) indemnify the holders of the Initial Notes (including any broker-dealer) against certain liabilities, including liabilities under the Securities Act.

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LEGAL MATTERS

        Certain legal matters relating to the Exchange Notes offered by this short form prospectus will be passed upon on our behalf by Torys LLP, New York, New York and Toronto, Canada, with respect to U.S. and Canadian law. As at the date hereof, the partners and associates of Torys LLP, as a group, beneficially own, directly or indirectly, less than 1% of the outstanding securities of the Company.

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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS

        PricewaterhouseCoopers LLP, Chartered Professional Accountants, Licensed Public Accountants, is the auditor of the Company and has confirmed that it is independent of the Company within the meaning of the Rules of Professional Conduct of the Chartered Professional Accountants of Ontario, and independent within the Securities Act, and the applicable rules and regulations adopted by the SEC and the Public Company Accounting Oversight Board (United States).

        Deloitte & Touche LLP, an independent registered public accounting firm located in New York, New York, is the former auditor of Allied World who has issued an independent auditors' report dated February 28, 2017 in respect of Allied World's audited consolidated financial statements as of December 31, 2016 and 2015 and for each of the three years in the period ended December 31, 2016, which is included in the Allied World BAR incorporated by reference herein. As of the date of their report, Deloitte & Touche LLP was independent with respect to Allied World within the meaning of the Securities Act, and the applicable rules and regulations thereunder adopted by the SEC and the Public Company Accounting Oversight Board (United States).

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AGENT FOR SERVICE OF PROCESS

        Brandon W. Sweitzer and Lauren C. Templeton are directors of Fairfax who reside outside of Canada. Mr. Sweitzer and Ms. Templeton have appointed the following agent for service of process:

Name of Person or Company	Name and Address of Agent
Brandon W. Sweitzer	Fairfax Financial Holdings Limited 95 Wellington Street West, Suite 800 Toronto, Ontario, M5J 2N7
Lauren C. Templeton	Fairfax Financial Holdings Limited 95 Wellington Street West, Suite 800 Toronto, Ontario, M5J 2N7

        Holders are advised that it may not be possible for investors to enforce judgments obtained in Canada against any person or company that is incorporated, continued or otherwise organized under the laws of a foreign jurisdiction or resides outside of Canada, even if the party has appointed an agent for service of process.

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DOCUMENTS FILED AS PART OF THE REGISTRATION STATEMENT

        The following documents have been filed with the SEC as part of the registration statement of which this short form prospectus is a part insofar as required by the SEC's Form F-10:

•

the documents set forth under "Documents Incorporated by Reference" in this short form prospectus;

•

the Registration Rights Agreement;

•

the consent of PricewaterhouseCoopers LLP, the Company's independent registered public accounting firm;

•

the consent of Deloitte & Touche LLP, Allied World's former independent registered public accounting firm;

•

the consent of Torys LLP, the Company's U.S. and Canadian counsel;

•

the indenture dated as of December 1, 1993;

•

the first supplemental indenture dated as of May 9, 2011;

•

the statement of eligibility of the trustee on Form T-1;

•

the form of letter of transmittal;

•

the form of notice of guaranteed delivery;

•

the form of letter to DTC participants, including brokers, dealers, commercial banks, trust companies and other nominees; and

•

powers of attorney (included on the signature pages of the registration statement).

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CERTIFICATE OF THE COMPANY

Date: November 21, 2018

        This short form prospectus, together with the documents incorporated herein by reference, constitutes full, true and plain disclosure of all material facts relating to the securities offered by this short form prospectus as required by the securities legislation of the Province of Ontario.

(Signed) V. PREM WATSA Chairman and Chief Executive Officer	(Signed) DAVID BONHAM Vice President and Chief Financial Officer
On behalf of the Board of Directors
(Signed) ANTHONY F. GRIFFITHS Director	(Signed) ALAN D. HORN Director

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FORM F-10

PART II

INFORMATION NOT REQUIRED TO BE DELIVERED TO
OFFEREES OR PURCHASERS

Indemnification of Officers and Directors

        The by-laws of the Company provide that, subject to the relevant provisions of the Canada Business Corporations Act, the Company shall indemnify a director or officer of the Company, a former director or officer of the Company, or another individual who acts or acted at the Company's request as a director or officer, or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of that association with the Company or such other entity if (i) the individual acted honestly and in good faith with a view to the best interests of the Company or, as the case may be, to the best interests of the other entity for which the individual acted as a director or officer or in a similar capacity at the Company's request; and (ii) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the individual has reasonable grounds for believing that the individual's conduct was lawful.

        The Company also maintains insurance for the benefit of its directors and officers against liability in their respective capacities as directors and officers. The directors and officers are not required to pay any premium in respect of the insurance. The policy contains standard industry exclusions.

        Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, the Registrant has been informed that in the opinion of the U.S. Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable.

EXHIBITS TO FORM F-10

Exhibit No.
	2.1	Registration Rights Agreement dated as of April 17, 2018, among Fairfax Financial Holdings Limited and the initial purchasers named therein
	4.1	Annual Information Form of Fairfax Financial Holdings Limited dated March 9, 2018 for the year ended December 31, 2017 (incorporated by reference to Exhibit 99.1 to our Form 40-F (File No. 001-31556) filed with the SEC on March 9, 2018 (the "Form 40-F"))
	4.2	Annual audited consolidated financial statements of Fairfax Financial Holdings Limited for the years ended December 31, 2017 and 2016 and Management's Report on Internal Control over Financial Reporting, and the management's discussion and analysis for the financial year ended December 31, 2017 (incorporated by reference to Exhibits 99.2 and 99.3 to the Form 40-F)
	4.3	Notice of annual and special meeting of shareholders and management information circular dated March 9, 2018 in respect of the annual and special meeting of shareholders held on April 26, 2018 (incorporated by reference to Exhibit 99.1 to our Form 6-K (File No. 001-31556), furnished to the SEC on March 9, 2018)
	4.4	Business acquisition report dated August 2, 2017 in respect of the acquisition of Allied World
	4.5	Interim unaudited consolidated financial statements of Fairfax Financial Holdings Limited as at September 30, 2018 and December 31, 2017 and for the three and nine month periods ended September 30, 2018 and 2017, and management's discussion and analysis for the period ended September 30, 2018 (incorporated by reference to Exhibit 99.2 to our Form 6-K (File No. 001-31556), furnished to the SEC on November 1, 2018)
	5.1	Consent of PricewaterhouseCoopers LLP

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Exhibit No.
	5.2	Consent of Deloitte & Touche LLP
	5.3	Consent of Torys LLP
	6.1	Powers of Attorney (contained on the signature page of this Registration Statement)
	7.1	Indenture dated as of December 1, 1993
	7.2	First supplemental indenture dated as of May 9, 2011
	7.3	Form of Note
	7.4	Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 on Form T-1
	99.1	Form of Letter of Transmittal
	99.2	Form of Notice of Guaranteed Delivery
	99.3	Form of Letter to DTC Participants

II-2

FORM F-10
PART III
UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

Item 1.    Undertaking.

        The Form F-10 Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to the securities registered pursuant to this Form F-10 or to transactions in said securities.

Item 2.    Consent to Service of Process.

        Concurrently with the filing of this Registration Statement, the Form F-10 Registrant is filing with the Commission a written irrevocable consent and power of attorney on Form F-X.

        Any change to the name or address of the agent for service of the Form F-10 Registrant shall be communicated promptly to the Commission by amendment to the applicable Form F-X referencing the file number of the relevant registration statement.

FORM F-10

SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-10 and has duly caused this registration statement to be signed on its behalf by the undersigned thereunto duly authorized, in the city of Toronto, country of Canada, on November 21, 2018.

FAIRFAX FINANCIAL HOLDINGS LIMITED
By:	/s/ PAUL RIVETT
	Name:	Paul Rivett
	Title:	President

III-1

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Paul Rivett and Derek Bulas his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement and any registration statements filed by the registrant pursuant to Rule 462(b) of the Securities Act of 1933 relating thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the United States Securities and Exchange Commission, granting to said attorney-in-fact and agent, with full power to act alone, full power and authority to do and perform each and every act and thing appropriate or necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on November 21, 2018.

Signature	Title
/s/ V. PREM WATSA V. Prem Watsa	Chairman, Chief Executive Officer and Director (principal executive officer)
/s/ DAVID BONHAM David Bonham	Vice President and Chief Financial Officer (principal financial officer and principal accounting officer)
/s/ ANTHONY F. GRIFFITHS Anthony F. Griffiths	Director
/s/ ROBERT J. GUNN Robert J. Gunn	Director
/s/ ALAN D. HORN Alan D. Horn	Director
/s/ KAREN L. JURJEVICH Karen L. Jurjevich	Director
/s/ CHRISTINE N. MCLEAN Christine N. McLean	Director
/s/ JOHN R.V. PALMER John R.V. Palmer	Director
/s/ TIMOTHY R. PRICE Timothy R. Price	Director
/s/ BRANDON W. SWEITZER Brandon W. Sweitzer	Director
/s/ LAUREN C. TEMPLETON Lauren C. Templeton	Director
/s/ BENJAMIN P. WATSA Benjamin P. Watsa	Director

III-2

AUTHORIZED REPRESENTATIVE

        Pursuant to the requirements of the Securities Act, this Registration Statement on Form F-10 has been signed below by the undersigned, solely in its capacity as the registrant's duly authorized representative in the United States, on November 21, 2018.

FAIRFAX (US) INC.
By:	/s/ MICHAEL BULLEN
	Name:	Michael Bullen
	Title:	President

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EX-2.1

Exhibit 2.1

EXECUTION VERSION

FAIRFAX FINANCIAL HOLDINGS LIMITED

US$600,000,000 Aggregate Principal Amount of 4.850% Senior Notes due 2028

REGISTRATION RIGHTS AGREEMENT

April 17, 2018

Merrill Lynch, Pierce, Fenner & Smith

Incorporated

One Bryant Park

New York, New York 10036

as representative of the several Initial Purchasers named in Schedule A to the Purchase Agreement

Dear Ladies and Gentlemen:

Fairfax Financial Holdings Limited, a Canadian corporation (the “Company”), proposes to issue and sell, upon the terms set forth in a purchase agreement dated as of April 12, 2018 (the “Purchase Agreement”), US$600,000,000 aggregate principal amount of its 4.850% Senior Notes due 2028 (the “Initial Securities”) to the initial purchasers named in Schedule A to the Purchase Agreement (collectively, the “Initial Purchasers”), for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated is acting as representative.  The Initial Securities will be issued pursuant to an Indenture, dated as of December 1, 1993, as supplemented and amended by the first supplemental indenture dated May 9, 2011 (the “Indenture”), among the Company, The Bank of New York Mellon, as successor U.S. trustee (the “United States Trustee”), and BNY Trust Company of Canada, as successor Canadian trustee (the “Canadian Trustee” and, together with the United States Trustee, the “Trustees”).  As an inducement to the Initial Purchasers, the Company agrees with the Initial Purchasers, for the benefit of the holders of the Initial Securities (including, without limitation, the Initial Purchasers), the Exchange Securities (as defined below) and the Private Exchange Securities (as defined below) (collectively, the “Holders”), as follows:

1.Registered Exchange Offer.  Unless not permitted by applicable law or Commission (as defined below) policy, the Company, at its own cost, shall prepare and file with the United States Securities and Exchange Commission (the “Commission”) a registration statement (the “Exchange Offer Registration Statement”) on an appropriate form under the United States Securities Act of 1933, as amended (the “Securities Act”), with respect to a proposed offer (the “Registered Exchange Offer”) to the Holders of Transfer Restricted Securities (as defined in Section 6(d) hereof), who are not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer, to issue and deliver to such Holders, in exchange for the Initial Securities, a like aggregate principal amount of debt securities (the “Exchange Securities”) of the Company, issued under the Indenture and identical in all material respects to the Initial Securities (except for the transfer restrictions relating to the Initial Securities and the provisions relating to the matters described in Section 6 hereof) that are registered under the Securities Act.  The Company shall use its commercially reasonable efforts to cause such Exchange Offer Registration Statement to become effective under the Securities

Act and to complete the Registered Exchange Offer within 360 days (or if the 360th day is not a business day, the first business day thereafter) after the date of original issue of the Initial Securities (the “Issue Date”) (such 360th day, or first business day thereafter, herein referred to as the “Consummation Deadline”) and to cause the Exchange Offer Registration Statement to remain effective continuously thereafter until the consummation of the Registered Exchange Offer.  The Company shall keep the Registered Exchange Offer open for not less than 20 business days (or longer, if required by applicable law) after the commencement of the Registered Exchange Offer (such period being called the “Exchange Offer Registration Period”).

Promptly after the Exchange Offer Registration Period, the Company shall accept all the Initial Securities validly tendered and not withdrawn in accordance with the terms of the Registered Exchange Offer.

Following the declaration of the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder of Transfer Restricted Securities (as defined in Section 6(d) hereof) electing to exchange the Initial Securities for Exchange Securities (assuming that such Holder is not an affiliate of the Company within the meaning of the Securities Act, acquires the Exchange Securities in the ordinary course of such Holder’s business and has no arrangements with any person to participate in the distribution of the Exchange Securities and is not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer) to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States.

The Company acknowledges that, pursuant to current interpretations by the Commission’s staff of Section 5 of the Securities Act, in the absence of an applicable exemption therefrom, (i) each Holder which is a broker-dealer electing to exchange Initial Securities, acquired for its own account as a result of market making activities or other trading activities, for Exchange Securities (an “Exchanging Dealer”), is required to deliver a prospectus containing the information required under the Securities Act in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer, and (ii) an Initial Purchaser that elects to sell Exchange Securities acquired in exchange for Initial Securities constituting any portion of an unsold allotment is required to deliver a prospectus containing the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in connection with such sale.

The Company shall use its commercially reasonable efforts to keep the Exchange Offer Registration Statement effective, and to amend and supplement the prospectus contained therein, in order to permit such prospectus to be lawfully delivered by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; provided, however, that (i) in the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer or an Initial Purchaser, such period shall be the lesser of 180 days and the period ending on the date on which all Exchanging Dealers and the Initial Purchasers have sold all Exchange Securities held by them (unless such period is extended pursuant to Section 3(j) below) and (ii) the Company shall make such prospectus, and any

2

amendment or supplement thereto, available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 180 days after the consummation of the Registered Exchange Offer.

If, upon consummation of the Registered Exchange Offer, any Initial Purchaser holds Initial Securities acquired by it as part of its initial distribution, the Company, simultaneously with the delivery of the Exchange Securities pursuant to the Registered Exchange Offer, shall issue and deliver to such Initial Purchaser upon the written request of such Initial Purchaser, in exchange (the “Private Exchange”) for the Initial Securities held by such Initial Purchaser, a like principal amount of debt securities of the Company, issued under the Indenture and identical in all material respects (including the existence of restrictions on transfer under the Securities Act and the securities laws of the several states of the United States, but excluding provisions relating to the matters described in Section 6 hereof) to the Initial Securities (the “Private Exchange Securities”).  The Initial Securities, the Exchange Securities and the Private Exchange Securities are herein collectively called the “Securities”.

In connection with the Registered Exchange Offer, the Company shall:

(a)           mail or otherwise furnish to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents;

(b)           keep the Registered Exchange Offer open for not less than 20 business days (or longer, if required by applicable law) after the commencement of the Registered Exchange Offer;

(c)           utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan in the City of New York, which may be the United States Trustee or an affiliate of the United States Trustee;

(d)           permit Holders to withdraw tendered Securities at any time prior to the close of business, New York time, on the last business day on which the Registered Exchange Offer shall remain open; and

(e)           otherwise comply in all material respects with all applicable laws.

As soon as practicable after the close of the Registered Exchange Offer or the Private Exchange, as the case may be, the Company shall:

(x)           accept for exchange all of the Initial Securities validly tendered and not withdrawn pursuant to the Registered Exchange Offer and the Private Exchange;

(y)           deliver to the Trustees for cancellation all of the Initial Securities so accepted for exchange; and

(z)           cause the Trustees to authenticate and deliver promptly to each Holder of the Initial Securities, Exchange Securities or Private Exchange Securities, as the case may be, equal in principal amount to the Initial Securities of such Holder so accepted for exchange.

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The terms of the Initial Securities provide that the Exchange Securities will not be subject to the transfer restrictions set forth in the Indenture and that all the Securities will vote and consent together on all matters as one class.

Interest on each Exchange Security and Private Exchange Security issued pursuant to the Registered Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Initial Securities surrendered in exchange therefor or, if no interest has been paid on the Initial Securities, from the date of original issue of the Initial Securities.

Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Exchange Securities within the meaning of the Securities Act, (iii) such Holder is not an “affiliate,” as defined in Rule 405 under the Securities Act, of the Company, or if it is an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) if such Holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Securities and (v) if such Holder is a broker-dealer, that it will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities and that it will comply with the prospectus delivery requirements of the Securities Act in connection with any resale of such Exchange Securities by delivering a prospectus included in an effective Registration Statement (as defined in Section 2(a) hereof).

Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

In addition, the Company may file the Exchange Offer Registration Statement pursuant to the Canada-U.S. multijurisdictional disclosure system (‘‘MJDS”), which may be a registration under the Canadian and U.S. shelf offering procedures.  Under MJDS, the Company may file a prospectus and a prospectus supplement, if applicable, to be contained in such registration statement with the applicable securities regulatory authorities in Canada and concurrently file the registration statement with the Commission.  Such registration statement filed with the Commission will become effective under the Securities Act upon delivery to the Commission of the notification of clearance by the applicable Canadian securities regulatory authorities and may not be subject to a review by the Commission.  If the Company files the

4

Exchange Offer Registration Statement under MJDS, the prospectus and the prospectus supplement, if applicable, contained in such registration statement will comply principally with the rules and regulations of the applicable Canadian securities regulatory authorities and may be subject to review by the applicable Canadian securities regulatory authorities.

If the Company is not permitted to file an Exchange Offer Registration Statement under MJDS, the Company may use any other available registration statement form under the Securities Act.

2.             Shelf Registration.  If, (i) the Company is not permitted to file the Exchange Offer Registration Statement (and has not completed an Exchange Offer prior to the Consummation Deadline), (ii) because of any change in law or in applicable interpretations thereof by the staff of the Commission, the Company is not permitted to effect a Registered Exchange Offer, as contemplated by Section 1 hereof (and has not completed an Exchange Offer prior to the Consummation Deadline), (iii) the Registered Exchange Offer is not consummated on or prior to the Consummation Deadline, (iv) any Initial Purchaser so requests with respect to (x) Initial Securities that are not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer or (y) Private Exchange Securities, and that in either case are held by it following consummation of the Registered Exchange Offer or (v) prior to the 20th day following the consummation of the Registered Exchange Offer, any Holder of Transfer Restricted Securities notifies the Company that (A) it is prohibited by law or the Commission from participating in the Registered Exchange Offer, (B) it may not resell the Exchange Securities acquired by it in the Registered Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales, or (C) it is a broker-dealer and owns Securities acquired directly from the Company or an affiliate of the Company, the Company shall take the following actions:

(a)           The Company shall prepare and, at its cost, shall use its commercially reasonable efforts to file as promptly as practicable (but in no event more than 90 days after so required or requested pursuant to this Section 2) with the Commission, and thereafter shall use its commercially reasonable efforts to cause to be declared effective (unless it becomes effective automatically upon filing) within 180 days after so required or requested pursuant to this Section 2, a registration statement (the “Shelf Registration Statement” and the Exchange Offer Registration Statement, each a “Registration Statement”) on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities (as defined in Section 6(d) hereof) by the Holders thereof from time to time in accordance with the methods of distribution set forth in the Shelf Registration Statement and Rule 415 under the Securities Act (hereinafter, the “Shelf Registration”); provided, however, that no Holder (other than an Initial Purchaser) shall be entitled to have the Securities held by it covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder (including the indemnification obligations set forth in Section 5 hereto) and provided further that, with respect to the Private Exchange Securities received by an Initial Purchaser in exchange for Initial Securities constituting any portion of an unsold allotment, the Company may, if permitted by current interpretations by the Commission’s staff, file a post-effective amendment to the Exchange Offer Registration Statement containing the information required by Item 507 or 508 of Regulation S-K, as applicable, in satisfaction of its obligations under this subsection with respect thereto, and any such Exchange Offer

5

Registration Statement, as so amended, shall be referred to herein as, and governed by the provisions herein applicable to, a Shelf Registration Statement.

(b)           The Company shall use its commercially reasonable efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus included therein to be lawfully delivered by the Holders of the relevant Securities, for a period of two years (or for such longer period if extended pursuant to Section 3(j) below) from the Issue Date or such shorter period that will terminate when all the Securities covered by the Shelf Registration Statement (i) have been sold pursuant thereto or (ii) are no longer restricted securities (as defined in Rule 144 under the Securities Act, or any successor rule thereof) (in any such case, such period being called the “Shelf Registration Period”).  The Company shall be deemed not to have used its commercially reasonable efforts to keep the Shelf Registration Statement effective during the Shelf Registration Period if it voluntarily takes any action that would result in Holders of Securities covered thereby not being able to offer and sell such Securities during that period, unless such action is required by applicable law or such action is taken by the Company in good faith and for valid business reasons (not including the avoidance of the Company’s obligations hereunder), including the acquisition or divestiture of assets, so long as the Company promptly thereafter complies with the requirements of Section 3(j) hereof, if applicable.

(c)           Notwithstanding any other provisions of this Agreement to the contrary, the Company shall cause the Shelf Registration Statement and the related prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement, amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

For greater certainty, the parties hereto acknowledge that, notwithstanding any filing of a Shelf Registration Statement by the Company in accordance with this Agreement, the Company will not be required to concurrently qualify the distribution of Transfer Restricted Securities to make such Securities freely tradable in Canada.

In addition, the Company may file the Shelf Registration Statement pursuant to MJDS.  Under MJDS, the Company may file a prospectus to be contained in such registration statement with the applicable securities regulatory authorities in Canada and concurrently file the registration statement with the Commission.  Such registration statement filed with the Commission will become effective under the Securities Act upon delivery to the Commission of the notification of clearance by the applicable Canadian securities regulatory authorities and may not be subject to a review by the Commission.  If the Company files the Shelf Registration Statement under MJDS, the prospectus contained in such registration statement will comply principally with the rules and regulations of the applicable Canadian securities regulatory authorities and may be subject to review by the applicable Canadian securities regulatory authorities.

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If the Company is not permitted to file a Shelf Registration Statement under MJDS, the Company may use any other available registration statement form under the Securities Act.

3.             Registration Procedures.  In connection with any Shelf Registration contemplated by Section 2 hereof and, to the extent applicable, any Registered Exchange Offer contemplated by Section 1 hereof, the following provisions shall apply:

(a)           The Company shall (i) furnish to each Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and, in the event that an Initial Purchaser (with respect to any portion of an unsold allotment from the original offering) is participating in the Registered Exchange Offer or the Shelf Registration Statement, the Company shall use its commercially reasonable efforts to reflect in each such document, when so filed with the Commission, such comments as such Initial Purchaser reasonably may propose; (ii) if requested by an Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement; (iii) include within the prospectus contained in the Exchange Offer Registration Statement a section entitled “Plan of Distribution,” reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the staff of the Commission with respect to the potential “underwriter” status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of Exchange Securities received by such broker-dealer in the Registered Exchange Offer (a “Participating Broker-Dealer”), whether such positions or policies have been publicly disseminated by the staff of the Commission or such positions or policies, in the reasonable judgment of the Initial Purchasers based upon advice of counsel (which may be in-house counsel), represent the prevailing views of the staff of the Commission; and (iv) in the case of a Shelf Registration Statement, include in the prospectus included in the Shelf Registration Statement (or, if permitted by Commission Rule 430B(b), in a prospectus supplement that becomes a part thereof pursuant to Commission Rule 430B(f)) that is delivered to any Holder pursuant to Section 3(d) and (f), the names of the Holders who propose to sell Securities pursuant to the Shelf Registration Statement as selling securityholders; provided that such Holders have provided the Company with such information at least two (2) business days prior to the filing of the Shelf Registration Statement or prospectus supplement, as applicable.

(b)           The Company shall give written notice to the Initial Purchasers, the Holders and any Participating Broker-Dealer from whom the Company has received prior written notice that it will be a Participating Broker-Dealer in the Registered Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes (if any) have been made):

(i)            when the Registration Statement or any amendment thereto has been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has become effective;

7

(ii)           of any request by the Commission for amendments or supplements to the Registration Statement or the prospectus included therein or for additional information;

(iii)          of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose, and of the issuance by the Commission of a notification of objection to the use of the form on which the Registration Statement has been filed;

(iv)          of the receipt by the Company or its legal counsel of any notification with respect to (x) the suspension of the qualification of the Securities for sale in any jurisdiction or (y) the initiation or the threatening of any proceeding for such purpose; and

(v)           of the happening of any event that requires the Company to make changes in the Registration Statement or the prospectus so that the Registration Statement or the prospectus does not contain an untrue statement of a material fact nor omits to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus, in light of the circumstances under which they were made) not misleading (provided, however, that no notice by the Company shall be required pursuant to this clause (v) in the event that the Company files a report on Form 6-K or other appropriate Exchange Act report that is incorporated by reference into such Registration Statement, which, in either case, contains the requisite information with respect to such event that results in such Registration Statement no longer containing any untrue statement of material fact or omitting to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading).

(c)           The Company shall use its commercially reasonable efforts to obtain the withdrawal at the earliest possible time, of any order suspending the effectiveness of the Registration Statement.

(d)           If not otherwise available on the Commission’s Electronic Data Gathering Analysis and Retrieval (“EDGAR”) System or similar system, upon the written request of a Holder of Securities included within the coverage of the Shelf Registration, the Company shall furnish to such Holder, without charge, at least one copy of the Shelf Registration Statement and any post-effective amendment or supplement thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference).  The Company shall not, without the prior written consent of the Representative, make any offer relating to the Securities utilizing a communication that would constitute a “free writing prospectus,” as defined in Commission Rule 405.  No Initial Purchaser, Holder or Participating Broker-Dealer shall, without the prior consent of the Company, make any offer utilizing a communication that would constitute a “free writing prospectus,” as defined in Commission Rule 405.

(e)           If not otherwise available on the Commission’s EDGAR System or similar system, upon the written request of an Initial Purchaser, Exchanging Dealer or Holder, the Company shall deliver to each such Exchanging Dealer and each Initial Purchaser, and to any other Holder who so requests, without charge, at least one copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements

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and schedules, and, if any Initial Purchaser or any such Holder requests, all exhibits thereto (including those incorporated by reference).

(f)            The Company shall, during the Shelf Registration Period, deliver to any Holder of Securities covered by the Shelf Registration, without charge, as many copies of the prospectus (including each preliminary prospectus) included in the Shelf Registration Statement and any amendment or supplement thereto as such person may reasonably request.  The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by each of the selling Holders of the Securities in connection with the offering and sale of the Securities covered by the prospectus, or any amendment or supplement thereto, included in the Shelf Registration Statement.

(g)           The Company shall deliver to each Initial Purchaser, any Exchanging Dealer, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement and any amendment or supplement thereto as such persons may reasonably request.  The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by any Initial Purchaser, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer in connection with the offering and sale of the Exchange Securities covered by the prospectus, or any amendment or supplement thereto, included in such Exchange Offer Registration Statement.

(h)           Prior to any public offering of the Securities pursuant to any Registration Statement, the Company shall use its commercially reasonable efforts to register or qualify, or cooperate with the Holders included therein and their respective counsel in connection with the registration or qualification of, the Securities for offer and sale under the securities or “blue sky” laws of such states of the United States as any such Holder reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities covered by such Registration Statement; provided, however, that the Company shall not be required to (i) qualify as a foreign corporation, trust or partnership, as the case may be, or as dealers in securities in any jurisdiction where they would not otherwise be required to qualify but for this paragraph, (ii) make any changes to its certificate of incorporation or by-laws, (iii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject or (iv) qualify a prospectus in any province or territory of Canada to make the Securities freely tradable in Canada.

(i)            Unless the Securities are in book-entry form, the Company shall cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing the Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders may request a reasonable period of time prior to sales of the Securities pursuant to such Registration Statement.

(j)            Upon the occurrence of any event contemplated by paragraphs (ii) through (v) of Section 3(b) above during the period for which the Company is required to maintain an effective Registration Statement, the Company shall promptly prepare and file a post-effective amendment to the Registration Statement or a supplement to the related prospectus and any other

9

required document so that, as thereafter delivered to Holders of the Securities or purchasers of Securities, the prospectus (i) in the case of paragraphs (ii)-(iv) of Section 3(b), includes such additional information as may be requested by the Commission or as otherwise may be necessary to obtain the withdrawal of any stop order, notification of objection or suspension of qualification of the Securities for sale in any jurisdiction, as applicable, or (ii) in the case of paragraph (v) of Section 3(b), will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  If the Company notifies the Initial Purchasers, the Holders and any known Participating Broker-Dealer in accordance with paragraphs (ii) through (v) of Section 3(b) above to suspend the use of the prospectus until the requisite changes (if any) to the prospectus have been made (such notice, a “Suspension Notice”), then the Initial Purchasers, the Holders and any such Participating Broker-Dealers shall suspend use of such prospectus (and shall keep confidential the cause of such notice for so long as such cause is not otherwise publicly known), and the period of effectiveness of the Shelf Registration Statement provided for in Section 2(b) above and the Exchange Offer Registration Statement provided for in Section 1 above shall each be extended by the number of days from and including the date of the giving of such notice to and including the date when the Initial Purchasers, the Holders and any known Participating Broker-Dealer shall have received such amended or supplemented prospectus pursuant to this Section 3(j).  Each Holder receiving a Suspension Notice hereby agrees that (unless prohibited by applicable law or internal policy of such Holder) it will destroy all prospectuses for the relevant Registration Statement, other than permanent file copies, then in such Holder’s possession which have been replaced by the Company with the amended and supplemented prospectus for such Registration Statement as provided for in this Section 3(j). During the period in which the Company is required to maintain an effective Shelf Registration Statement pursuant to this Agreement, the Company shall file prior to the expiration of such Shelf Registration Statement, and shall use its commercially reasonable efforts to cause to be declared effective (unless it becomes effective automatically upon filing) within a period that avoids any interruption in the ability of Holders of Securities covered by the expiring Shelf Registration Statement to make registered dispositions, a new registration statement relating to the unsold Securities, which shall be deemed the “Shelf Registration Statement” for purposes of this Agreement; provided, however, in no event shall the Company be obligated to keep any Shelf Registration Statement effective beyond the Shelf Registration Period as extended by the number of days required by the second sentence of this Section 3(j).

(k)           To the extent not already obtained, not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, in a form eligible for deposit with The Depository Trust Company.  The CUSIP number for the Exchange Securities shall be 303901 BB7 and the Company shall use its commercially reasonable efforts to cause any Initial Securities or Private Exchange Securities sold pursuant to a Shelf Registration Statement to bear the same CUSIP number as the CUSIP number of such series.

(l)            The Company will comply with all rules and regulations of the Commission to the extent and so long as they are applicable to the Registered Exchange Offer or

10

the Shelf Registration and will make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company’s first fiscal quarter commencing after the effective date of the Registration Statement, which statement shall cover such 12-month period.

(m)To the extent not already qualified, the Company shall cause the Indenture to be qualified under the United States Trust Indenture Act of 1939, as amended, in a timely manner and containing such changes, if any, as shall be necessary for such qualification in connection with the filing of a Registration Statement.  In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture.

(n)The Company may require each Holder of Securities to be sold pursuant to any Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of the Securities as the Company may from time to time reasonably require for inclusion in such Shelf Registration Statement, and the Company may exclude from such registration the Securities of any Holder that fails to furnish such information within a reasonable time after receiving such request.

(o)The Company shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take all such other action, if any, as any Holder of the Securities shall reasonably request in order to facilitate the disposition of the Securities pursuant to any Shelf Registration.

(p)In the case of any Shelf Registration, the Company shall (i) make reasonably available for inspection by the Holders, any underwriter participating in any disposition pursuant to the Shelf Registration Statement and any attorney, accountant or other agent retained by the Holders or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and (ii) cause the Company’s officers, directors, employees, accountants and auditors to supply all relevant information reasonably requested by the Holders or any such underwriter, attorney, accountant or agent in connection with the Shelf Registration Statement, in each case, as shall be reasonably necessary to enable such persons, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that the foregoing inspection and information gathering shall be coordinated on behalf of the Initial Purchasers and on behalf of the other parties, by one counsel designated by and on behalf of such other parties as described in Section 4 hereof, provided further, that if the Company designates in writing any such information, reasonably and in good faith, as confidential, at the time of delivery of such information, each such person will be required to agree or acknowledge that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis of any market transactions in the Securities of the Company or otherwise unless and until such information is made generally available to the public through no fault or action of such person.

(q)In the case of any Shelf Registration, the Company, if requested by any Holder of Securities covered thereby, shall cause (i) its counsel (who may be an employee of the

11

Company) to deliver an opinion and updates thereof relating to the Securities in customary form addressed to such Holders and the Managing Underwriters (defined in Section 8 below), if any, thereof and dated, in the case of the initial opinion, the effective date of such Shelf Registration Statement (it being agreed that the matters to be covered by such opinion shall include such matters as are customarily covered in opinions requested in underwritten offerings and such matters as may be reasonably requested by such Holders and Managing Underwriters); (ii) its officers to execute and deliver all customary documents and certificates and updates thereof reasonably requested by any Managing Underwriters of the applicable Securities and (iii) its independent registered public accounting firm (and the independent registered public accounting firm with respect to any other entity for which financial information is provided in the Shelf Registration Statement) to provide to the selling Holders of the applicable Securities and any underwriter therefor a comfort letter in customary form and covering matters of the type customarily covered in comfort letters in connection with primary underwritten offerings, subject to receipt of appropriate documentation as contemplated, and only if permitted, under applicable Canadian accounting standards.

(r)If a Registered Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Initial Securities by Holders to the Company (or to such other person as directed by the Company) in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be, the Company shall cause the Initial Securities so exchanged to be cancelled in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be.

(s)In the event that any broker-dealer registered under the Exchange Act shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group or “assist in the distribution” (within the meaning of the Conduct Rules (the “Rules”) of the Financial Industry Regulatory Authority, Inc.) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company will assist such broker-dealer in complying with the requirements of such Rules, including, without limitation, by (i) if such Rules, including Rule 2720, shall so require, engaging a “qualified independent underwriter” (as defined in Rule 2720) to participate in the preparation of the Registration Statement relating to such Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Securities, (ii) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 5 hereof and (iii) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules.

(t)The Company shall use its commercially reasonable efforts to take all other steps necessary to effect the registration of the Securities covered by a Registration Statement contemplated hereby.

(u)Each Holder and each Participating Broker-Dealer agrees by acquisition of Initial Securities or Exchange Securities that, upon the Company providing notice to such Holder or Participating Broker-Dealer, as the case may be, that the Board of Directors of the Company has made a good faith determination that the Company has a bona fide business purpose for

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doing so (other than with respect to the occurrence of any event of the kind described in paragraphs (ii) through (v) of Section 3(b) hereof), then, upon providing such notice (which shall refer to this Section 3(u)), the Company may delay the filing or the effectiveness of the Exchange Offer Registration Statement or the Shelf Registration Statement (if not then filed or effective, as applicable) and shall not be required to maintain the effectiveness thereof or amend or supplement the Exchange Offer Registration Statement or the Shelf Registration Statement, in all cases, for a period (a “Delay Period”) expiring upon the date which is the earlier of (A) the date on which the Board of Directors of the Company has determined in good faith (with such determination to occur as soon as practicable) that such business purpose ceases to interfere with the Company’s obligations to file or maintain the effectiveness of any such Registration Statement pursuant to this Agreement or (B) 60 days after the Company notifies the Holders of such good faith determination.  There shall not be more than 60 days of Delay Periods during any 12-month period.  The period of effectiveness of the Shelf Registration Statement provided for in Section 2(b) above and the Exchange Offer Registration Statement provided for in Section 1 above shall each be extended by a number of days equal to the number of days during any Delay Period.  Any Delay Period will not alter the obligations of the Company to pay Additional Interest under the circumstances set forth in Section 6 hereof.

4.Registration Expenses.  The Company shall bear all fees and expenses incurred by it in connection with the performance of its obligations under Sections 1 through 3 hereof, whether or not the Exchange Offer Registration Statement or a Shelf Registration Statement is filed or becomes effective, and, in the event of a Shelf Registration, shall bear or reimburse the Holders of the Securities covered thereby for the reasonable fees and disbursements of one firm of counsel designated by the Holders of a majority in principal amount of the Initial Securities covered thereby to act as counsel for the Holders of the Initial Securities in connection therewith.

5.Indemnification.

(a)The Company agrees to indemnify and hold harmless (i) each Holder, (ii) any Participating Broker-Dealer, (iii) each person, if any, who controls such Holder or such Participating Broker-Dealer within the meaning of the Securities Act, and (iv) the respective officers, directors, partners, employees, representatives and agents of any of the foregoing (each of the persons referred to in clauses (i) through (iv) are referred to collectively as the “Indemnified Parties”) against any losses, claims, damages or liabilities, joint or several, to which such Indemnified Party may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus or “issuer free writing prospectus,” as defined in Rule 433 under the Securities Act (an “Issuer FWP”), relating to a Shelf Registration, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Indemnified Party for any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in a Registration Statement or

13

prospectus or in any amendment or supplement thereto or in any preliminary prospectus or Issuer FWP relating to a Shelf Registration in reliance upon and in conformity with written information furnished to the Company by the Indemnified Party expressly for use therein.

(b)Each Holder and Participating Broker-Dealer, severally and not jointly, will indemnify and hold harmless (i) the Company, (ii) each person who controls the Company within the meaning of the Securities Act and (iii) the respective officers, directors, partners, employees, representatives and agents of any of the foregoing (each of the persons referred to in clauses (i) through (iii), a “Company Indemnified Person”) against any losses, claims, damages or liabilities to which the Company may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus or Issuer FWP relating to a Shelf Registration or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus or Issuer FWP relating to a Shelf Registration, in reliance upon and in conformity with written information furnished to the Company by such Holder or Participating Broker-Dealer expressly for use therein; and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred.

(c)Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than under subsection (a) or (b) above.  In case any such action shall be brought against any indemnified party, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party, acting reasonably, and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation unless such indemnified party shall have reasonably concluded that there may be defenses available to it which are different from, additional to or in conflict with those available to the indemnifying party (in which case the indemnifying party shall not have the right to direct the defense of such action on behalf of the indemnified party), in which event such legal and other expenses shall be borne by the indemnifying party and paid as incurred (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel (in addition to any local counsel) in any one action or series of related actions in the same

14

jurisdiction representing the indemnified parties who are parties to such action).  No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party.

(d)If the indemnification provided for in this Section 5 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party or parties on the other from the issuance and sale by the Company of the Initial Securities to the Initial Purchasers pursuant to the Purchase Agreement (the “Initial Placement”) (which in the case of the Company shall be deemed to be equal to the total gross proceeds to the Company from the Initial Placement), the amount of Additional Interest (as defined in Section 6 hereof) which did not become payable as a result of the filing of the Registration Statement resulting in such losses, claims, damages, liabilities, judgments actions or expenses, and such Registration Statement.  If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party or parties on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations.  The relative fault of the Company on the one hand and the Holder or Participating Broker-Dealer, on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or such Holder or Participating Broker-Dealer on the other and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.  The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim.  Notwithstanding the provisions of this subsection (d), no Holder shall be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale of the Securities pursuant to a Registration Statement exceeds the amount of damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.  No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

15

(e)The obligations of the Company under this Section 5 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Holder or Participating Broker-Dealer within the meaning of the Securities Act; and the obligations of any Holder and Participating Broker-Dealer shall be in addition to any liability which the respective Initial Purchasers may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company and to each person, if any, who controls the Company within the meaning of the Securities Act.

(f)The agreements contained in this Section 5 shall survive the sale of the Securities pursuant to a Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party.

6.Additional Interest Under Certain Circumstances.

(a)Additional interest (the “Additional Interest”) with respect to the Transfer Restricted Securities shall be assessed as follows if any of the following events occur (each such event in clauses (i) through (iv) below a “Registration Default”):

(i)if the Registered Exchange Offer is not consummated on or prior to the Consummation Deadline;

(ii)if obligated to file the Shelf Registration Statement and the Company fails to file the Shelf Registration Statement with the Commission on or prior to the 90th day after such filing obligation arises;

(iii)if obligated to file a Shelf Registration Statement and the Shelf Registration Statement is not declared effective by the Commission on or prior to the 180th day after the obligation to file a Shelf Registration Statement arises; or

(iv)if after either the Exchange Offer Registration Statement or the Shelf Registration Statement is declared (or becomes automatically) effective (A) such Registration Statement thereafter ceases to be effective, or (B) such Registration Statement or the related prospectus ceases to be usable (except as permitted in paragraph (b) below) in connection with resales of Transfer Restricted Securities, in either case during the periods specified herein for any reason, including, but not limited to the following: (1) any event occurs as a result of which the related prospectus forming part of such Registration Statement would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, (2) it shall be necessary to amend such Registration Statement or supplement the related prospectus, to comply with the Securities Act or the Exchange Act or the respective rules thereunder, or (3) such Registration Statement is a Shelf Registration Statement that has expired before a replacement Shelf Registration Statement has become effective causing an interruption in the ability of Holders of Transfer Restricted Securities covered by the expiring Shelf Registration Statement to make registered dispositions.

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Additional Interest shall accrue on the Transfer Restricted Securities over and above the interest rate otherwise payable on such Securities from and including the date on which any such Registration Default shall occur to but excluding the date on which all such Registration Defaults have been cured, at a rate of 0.25 percent per annum for the first 90 day period immediately following the occurrence of such Registration Default (the “Additional Interest Rate”).  The Additional Interest Rate shall increase by an additional 0.25 percent per annum with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum Additional Interest Rate of 0.50 percent per annum.  The Company will not be required to pay Additional Interest for more than one Registration Default at any given time.

(b)A Registration Default referred to in Section 6(a)(iv)(B) hereof shall be deemed not to have occurred and be continuing in relation to a Shelf Registration Statement or the related prospectus if (i) such Registration Default has occurred solely as a result of (x) the filing of a post-effective amendment to such Shelf Registration Statement to incorporate annual audited financial statements or any other information with respect to the Company required to be filed by the Company pursuant to applicable securities laws, where such post-effective amendment is not yet effective and needs to be declared effective to permit Holders to use the related prospectus or (y) other material events or developments with respect to the Company that would need to be described in such Shelf Registration Statement or the related prospectus and (ii) in the case of clause (y), the Company is proceeding promptly and in good faith to amend or supplement such Shelf Registration Statement and related prospectus to describe such events; provided, however, that in any case if such Registration Default occurs for a continuous period in excess of 45 days, Additional Interest shall be payable in accordance with Section 6(a) from the day such Registration Default occurs until such Registration Default is cured.

(c)Any amounts of Additional Interest due will be payable in cash on the regular interest payment dates with respect to the Transfer Restricted Securities.

(d)“Transfer Restricted Securities” means each Initial Security until (i) the date on which such Initial Security has been exchanged by a person other than a broker-dealer for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered Exchange Offer of an Initial Security for an Exchange Security, the date on which such Exchange Security is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Initial Security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement, (iv) the date on which such Initial Security is distributed to the public pursuant to Rule 144 under the Securities Act or (v) such Initial Security ceases to be outstanding.

7.Rules 144 and 144A.  The Company shall use its best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Initial Securities that are “restricted securities” within the meaning of Rule 144 and are not saleable pursuant to Rule 144(d), make publicly available other information so long as necessary to permit sales of their Securities pursuant to Rules 144 and 144A under the Securities Act.  The Company covenants that it will take such further action as any Holder of Initial

17

Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Initial Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)).  The Company will provide a copy of this Agreement to prospective purchasers of Initial Securities identified to the Company by the Initial Purchasers upon request.  If the Company is not at any time a reporting company under the Exchange Act, upon the request of any Holder of Initial Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with the requirements on its part to be complied with Rule 144A under the Securities Act, as applicable.  Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act.

8.Underwritten Registrations.  If any of the Transfer Restricted Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering (“Managing Underwriters”) will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities to be included in such offering, with the Company’s approval, not to be unreasonably withheld.

No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person’s Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, lock-up agreements, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements.

9.Miscellaneous.

(a)Amendments and Waivers.  The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, except by the Company and the written consent of the Holders of a majority in principal amount of the Securities affected by such amendment, modification, supplement, waiver or consents; provided that the Company and the Initial Purchasers may amend, modify or supplement this Agreement, or provide for the waiver or consent to departures from the provisions hereof, without the consent of Holders if such amendment, modification or supplement, or waiver or consent, is not adverse to Holders.

(b)Notices.  All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first-class mail, facsimile transmission, or courier:

(1)if to a Holder, at the most current address given by such Holder to the Company.

(2)if to the Initial Purchasers:

c/o

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Merrill Lynch, Pierce, Fenner & Smith

Incorporated

50 Rockefeller Plaza

NY1-050-12-01

New York, New York 10020

Facsimile: (646) 855-5958

Attention: High Grade Transaction Management/Legal

with a copy to:

Gibson, Dunn & Crutcher LLP

200 Park Avenue

New York, New York 10166

Facsimile:  (212) 351-5237

Attention:  Andrew L. Fabens

(3)if to the Company, at its address as follows:

Fairfax Financial Holdings Limited

95 Wellington Street West

Suite 800

Toronto, Ontario M5J 2N7

Canada

Facsimile:  (416) 367-4946

Telephone:  (416) 367-4941

Attention:  Paul Rivett

President

with a copy to:

Torys LLP

1114 Avenue of the Americas, 23rd Floor

New York, New York 10036

Facsimile:  (212) 682-0200

Attention:  Mile T. Kurta

All such notices and communications shall be deemed to have been duly given:  at the time delivered by hand, if personally delivered; three business days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged by recipient’s facsimile machine operator, if sent by facsimile transmission; and on the day delivered, if sent by overnight air courier guaranteeing next day delivery.

(c)No Inconsistent Agreements.  The Company has not, as of the date hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders herein or otherwise conflicts with the provisions hereof.

19

(d)Successors and Assigns.  This Agreement shall be binding upon the Company and its successors and assigns.

(e)Counterparts.  This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts (which may include counterparts delivered by any standard form of telecommunication), each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

(f)Headings.  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(g)Governing Law.  THIS AGREEMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.  THE PARTIES HEREBY SUBMIT TO THE PERSONAL JURISDICTION OF AND EACH AGREES THAT ALL PROCEEDINGS RELATING HERETO SHALL BE BROUGHT IN THE FEDERAL AND STATE COURTS LOCATED WITHIN THE STATE OF NEW YORK AND TO THE SERVICE OF PROCESS BY REGISTERED MAIL, RETURN RECEIPT REQUESTED, OR BY ANY OTHER MANNER PROVIDED BY THE LAWS OF THE STATE OF NEW YORK.  EACH OF THE PARTIES TO THIS AGREEMENT WAIVES THE RIGHT TO TRIAL BY JURY.

(h)Severability.  If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby.

(i)Securities Held by the Company.  Whenever the consent or approval of Holders of a specified percentage of principal amount of Securities is required hereunder, Securities held by the Company or its affiliates (other than subsequent Holders of Securities if such subsequent Holders are deemed to be affiliates solely by reason of their holdings of such Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.

(j)Agent for Service; Submission to Jurisdiction; Waiver of Immunities.  The Company agrees that any legal suit, action or proceeding brought by the Initial Purchasers or any person controlling an Initial Purchaser arising out of or based upon this Agreement may be instituted in any state or federal court in the Borough of Manhattan, The City of New York, State of New York, waives to the fullest extent permitted by law any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding, and submits to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding.  The Company hereby irrevocably designates and appoints CT Corporation System (or any successor entity) as the Company’s authorized agent upon which process may be served in any such suit, action or proceeding in any such court and agrees that service of process upon CT Corporation System (or such successor entity) at its office at 111 8th Avenue, 13th Floor, New York, New

20

York 10011 (or such other address in the Borough of Manhattan, The City of New York, State of New York, as the Company may designate by written notice to the Initial Purchasers), and written notice of said service to the Company mailed or delivered to 95 Wellington Street West, Suite 800, Toronto, Ontario M5J 2N7, Attention: Paul Rivett, President, shall be deemed in every respect effective service of process upon the Company in any such suit, action or proceeding and shall be taken and held to be valid personal service upon the Company.  Said designation and appointment shall be irrevocable for a period of ten years from the date of this Agreement.  The Company agrees to take all action as may be necessary to continue the designation and appointment of CT Corporation System, or any successor entity in full force and effect so that the Company shall at all times during such period have an agent for service of process for the above purposes in the Borough of Manhattan, The City of New York, State of New York.  Nothing herein shall affect the right of the Initial Purchasers or any person controlling an Initial Purchaser to serve process in any manner permitted by law or limit the right of the Initial Purchasers or any person controlling an Initial Purchaser to bring proceedings against the Company in the courts of any jurisdiction or jurisdictions.  To the extent that the Company may acquire any immunity from jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, it hereby irrevocably waives such immunity in respect of this Agreement, to the fullest extent permitted by law.

(k)Judgment Currency.  The obligation of the Company in respect of any sum due to any Holder shall, notwithstanding any judgment in a currency other than United States dollars, not be discharged until the first business day, following receipt by such Holder of any sum adjudged to be so due in such other currency, on which (and only to the extent that) such Holder may in accordance with normal banking procedures purchase United States dollars with such other currency; if the United States dollars so purchased are less than the sum originally due to such Holder hereunder, the Company agrees, as a separate obligation and notwithstanding any such judgment, to indemnify such Holder against such loss.  If the United States dollars so purchased are greater than the sum originally due to such Holder hereunder, such Holder agrees to pay to the Company an amount equal to the excess of the dollars so purchased over the sum originally due to such Holder hereunder.

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If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the several Initial Purchasers and the Company in accordance with its terms.

Very truly yours,
FAIRFAX FINANCIAL HOLDINGS LIMITED
By:	/s/ Paul Rivett
	Name: Paul Rivett
	Title: President

The foregoing Registration
Rights Agreement is hereby confirmed
and accepted as of the date first
above written.

By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:	/s/ Matthew Basier
Name:	Matthew Basier
Title:	Managing Director

On behalf of themselves and as
Representative of the Initial Purchasers

EX-4.4

Exhibit 4.4

FAIRFAX FINANCIAL HOLDINGS LIMITED
FORM 51-102F4
BUSINESS ACQUISITION REPORT

Item 1Identity of Company

1.1Name and Address of Company

Fairfax Financial Holdings Limited (“Fairfax” or the “Company”)

95 Wellington Street West, Suite 800

Toronto, Ontario

M5J 2N7

1.2Executive Officer

Further information regarding the matters described in this report may be obtained from John Varnell, Vice President, Corporate Development, who may be contacted at (416) 367-4941.

Item 2Details of Acquisition

2.1Nature of Business Acquired

On July 6, 2017, Fairfax, through its indirect subsidiary Fairfax Financial Holdings (Switzerland) GmbH (“FFH Switzerland”), completed its offer to acquire all of the outstanding registered ordinary shares (“Allied World Shares”) of Allied World Assurance Company Holdings, AG (“Allied World”) pursuant to an offer to exchange made to all Allied World shareholders (the “Offer”). Upon completion of the Offer, Fairfax and its co-investors (see item 2.3 below) indirectly acquired 94.6% of the outstanding Allied World Shares. Allied World is a Swiss-based holding company headquartered in Switzerland, whose subsidiaries provide innovative property, casualty and specialty insurance and reinsurance solutions to clients worldwide. Allied World was formed in Bermuda in 2001 and has continued to maintain significant insurance and reinsurance operations there following its redomestication to Switzerland in 2010.

Allied World is currently a publicly listed entity on the New York Stock Exchange and the remaining 5.4% interest is owned by public shareholders. As (i) Fairfax and its co-investors have indirectly acquired and control greater than 90% of all outstanding Allied World Shares as a result of the Offer, (ii) no actions or proceedings are pending with respect to the exercisability of the voting rights associated with those Allied World Shares and (iii) no other legal impediment to a squeeze-out merger under Swiss law exists, Fairfax, through FFH Switzerland, has indirectly initiated a squeeze-out merger under Swiss law (the “Merger”) whereby all remaining Allied World shareholders will receive the same consideration as received by Allied World shareholders in connection with the Offer. Closing of the Merger is expected to occur in the third quarter of 2017. Following completion of the Merger, Fairfax and its co-investors will indirectly hold a 100% interest in Allied World through FFH Switzerland, and Fairfax will own 67.4% of FFH Switzerland. The Offer and the Merger are together referred to herein as, the “Transactions”.

2.2Acquisition Date

July 6, 2017 (the “Acquisition Date”)

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2.3Consideration

(All figures in US$)

Pursuant to the terms of the agreement and plan of merger dated December 18, 2016 (the “Merger Agreement”) between Fairfax and Allied World, consideration for the Allied World Shares acquired under the Offer was approximately $48.22 per Allied World Share, comprised of (i) cash consideration of $23.00, without interest (the “Cash Consideration”), and (ii) 0.057937 of a subordinate voting share of Fairfax (“Fairfax Shares”), having a value of $25.22 based on the closing price of the Fairfax Shares on July 5, 2017.

In addition, Allied World declared a special cash dividend of $5.00 per share, without interest, to holders of Allied World Shares as of immediately prior to the Acquisition Date, which was paid outside of the Offer (the “Special Dividend”).

The Cash Consideration component of the Offer was primarily comprised of the proceeds of a short term bridge financing loan of $350 million entered into by the Company (which was used to bridge the closing of certain sale transactions involving non-core businesses that Fairfax has no ability to control long-term) and the proceeds from the sale of 32.6% of the equity interest in FFH Switzerland for $1.58 billion to Ontario Municipal Employees Retirement System, the pension plan manager for government employees in the province of Ontario, Alberta Investment Management Corporation, an investment manager for pension, endowment and government funds in the province of Alberta, and certain other third parties (collectively, the “Co-Investors”) none of which Co-Investors are affiliates of Fairfax. Following completion of the Acquisition, FFH Switzerland continued as the direct parent of Allied World, and the Co-Investors’ equity interests therein currently represent an approximate 30.8% indirect interest in Allied World (increasing to approximately 32.6% following completion of the Merger).

On July 7, 2017, Fairfax indirectly initiated the Merger. If Fairfax is successful in acquiring all of the remaining outstanding Allied World Shares, the consideration per Allied World Share would be comprised of cash of $23.00 and 0.057937 of a Fairfax Share (the “Merger Consideration”).

The consideration for the initial 94.6% interest is, and the anticipated consideration if all of the Allied World Shares are acquired under the Merger is expected to be, as follows:

(US $millions)	94.6%		100%
Issuance of Fairfax Shares	$	2,089	$	2,209
Cash consideration:
Indirect investments by Co-Investors	$	1,580	$	1,580
Fairfax bridge loan and holding company cash	$	325	$	434
Liability to settle Allied World stock awards	$	138	$	138
Total consideration:	$	4,132	$	4,361

Further detail regarding the Offer, the Merger and related transactions, including the Merger Agreement, can be found on Fairfax’s SEDAR profile at www.sedar.com.

2.4Effect on Financial Position

The estimated effect of the Transactions on Fairfax’s financial position is outlined in the unaudited pro forma condensed combined financial statements of Fairfax included in Schedule A to this Business Acquisition Report. The unaudited pro forma adjustments described therein are based on estimates and assumptions made by management, all of which are preliminary and have been made solely for the

2

purpose of preparing the unaudited pro forma condensed combined financial statements. Changes are expected as valuations of assets acquired and liabilities assumed are completed and as additional information becomes available. Accordingly, the final fair value determinations may differ from those set forth in the unaudited pro forma condensed combined financial statements and such adjustments may be material.

Fairfax does not presently plan or propose to make any material change in its or Allied World’s business or affairs that would reasonably be expected to have a significant effect on the financial position or results of operations of Fairfax.

2.5Prior Valuations

No valuation opinion was obtained in the last 12 months by Fairfax or, to Fairfax’s knowledge, Allied World. However, Allied World obtained a fairness opinion from Merrill Lynch, Pierce, Fenner & Smith Incorporated dated December 18, 2016, attesting to the fairness of the Transactions to the shareholders of Allied World.

2.6Parties to Transaction

Not applicable.

2.7Date of Report

August 2, 2017

Item 3Financial Statements

The following financial statements and related notes thereto are included as schedules to this Business Acquisition Report:

Fairfax Financial Holdings Limited (attached as Schedule A)

·Unaudited pro forma condensed combined statements of earnings of Fairfax for the three months ended March 31, 2017 and for the year ended December 31, 2016; and

·Unaudited pro forma condensed combined balance sheet of Fairfax as at March 31, 2017.

Allied World Assurance Company Holdings, AG (attached as Schedule B)

·Unaudited condensed consolidated financial statements of Allied World as at and for the three months ended March 31, 2017, together with the notes thereto; and

·Audited consolidated financial statements of Allied World as at and for the year ended December 31, 2016, together with the notes thereto and the report of the independent registered public accounting firm thereon.

3

Forward-Looking Statements

Certain statements contained herein may constitute forward-looking statements within the meaning of applicable Canadian and United States securities laws and are made pursuant to the “safe harbour” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statements related to Fairfax’s plans and proposals for Allied World, including the Merger, and are generally identified by words such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “will,” “may,” “continue,” “should,” and other similar expressions. Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Fairfax, Allied World or the combined company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such statements reflect the current views of management of Fairfax and are subject to a number of risks and uncertainties. These statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, corporate approvals, regulatory approvals, operational factors and other factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations. All forward-looking statements attributable to Fairfax and Allied World, or persons acting on their behalf, are expressly qualified in their entirety by the cautionary statements set forth in this paragraph.

Undue reliance should not be placed on such statements, which speak only as of the date they are made. Such factors include, but are not limited to the risks and uncertainties described in: (i) Fairfax’s most recently issued Annual Report which is available at www.fairfax.ca and in its Supplemental and Base Shelf Prospectus (under “Risk Factors”) filed with the securities regulatory authorities in Canada, which is available on SEDAR at www.sedar.com; and (ii) Allied World’s most recently issued Annual Report filed on Form 10-K, which is available on EDGAR at www.sec.gov. Fairfax disclaims any intention or obligation to update or revise any forward-looking statements and undertakes no obligation to release publicly the results of any future revisions to the forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

4

SCHEDULE A

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The unaudited pro forma condensed combined statements of earnings for the three months ended March 31, 2017 and for the year ended December 31, 2016 and the unaudited pro forma condensed combined balance sheet as at March 31, 2017 have been prepared by Fairfax and is intended to illustrate the effect of the indirect acquisition by Fairfax and its co-investors on July 6, 2017 of a 94.6% controlling interest in Allied World (the “Acquisition”), followed by the Merger to increase that interest in Allied World to 100%.

As (i) Fairfax and its co-investors have indirectly acquired and controls greater than 90% of all outstanding Allied World Shares as a result of the Offer, (ii) no actions or proceedings are pending with respect to the exercisability of the voting rights associated with those Allied World Shares and (iii) no other legal impediment to a squeeze-out merger under Swiss law exists, Fairfax, through FFH Switzerland, has indirectly initiated a squeeze-out merger under Swiss law (the “Merger”) whereby all remaining Allied World shareholders will receive the same consideration as received by Allied World shareholders in connection with the Offer. Closing of the Merger is expected to occur in the third quarter of 2017. Following completion of the Merger, Fairfax and its co-investors will indirectly hold a 100% interest in Allied World through FFH Switzerland, and Fairfax will own 67.4% of FFH Switzerland. Accordingly, the unaudited pro forma condensed combined statements of earnings for the three months ended March 31, 2017 and for the year ended December 31, 2016 and the unaudited pro forma condensed combined balance sheet as at March 31, 2017 have also been prepared to give effect to the Acquisition of a 94.6% interest in Allied World followed by the Merger to increase that interest to 100%.

Presented below are the unaudited pro forma financial statements as follows:

·the unaudited pro forma condensed combined statements of earnings of Fairfax for the three months ended March 31, 2017 and for the year ended December 31, 2016, prepared as if the Transactions occurred on January 1, 2016; and

·the unaudited pro forma condensed combined balance sheet as at March 31, 2017 of Fairfax, prepared as if the Transactions had occurred at that date.

The assumptions underlying the unaudited pro forma adjustments are described in the accompanying notes.

The unaudited pro forma condensed combined financial statements have been prepared based upon information derived from the following:

·the unaudited interim consolidated financial statements of Fairfax as at and for the three months ended March 31, 2017, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) relevant to the preparation of interim financial statements;

·the audited consolidated financial statements of Fairfax as at and for the year ended December 31, 2016, which have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”); and

·the unaudited condensed consolidated financial statements of Allied World as at and for the three months ended March 31, 2017, and the audited consolidated financial statements of Allied World as at and for the year ended December 31, 2016, which have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). These consolidated financial statements have been reconciled to Fairfax’s IFRS accounting policies where required.

5

The Acquisition will be accounted for by Fairfax using the acquisition method pursuant to IFRS 3 “Business Combinations”. Under the acquisition method, assets and liabilities are initially recorded at their fair value on the date of purchase, with limited exceptions, and the total purchase price is allocated to the tangible and intangible assets acquired and liabilities, including contingent liabilities, assumed. The 5.4% of Allied World not acquired as part of the Acquisition will be recorded as non-controlling interest based on the acquisition date proportionate fair value of the net assets of Allied World. The Merger will be accounted for by Fairfax as a separate equity transaction related to the acquisition of non-controlling interest pursuant to IFRS 10 “Consolidated Financial Statements” whereby any difference between the consideration paid for the non-controlling interest and its carrying value is recorded in common shareholders’ equity.

The unaudited pro forma adjustments give effect to events that are directly attributable to the Transactions, are factually supportable and, with respect to the unaudited pro forma condensed combined statements of earnings, are expected to have a continuing impact on Fairfax. The unaudited pro forma condensed combined financial statements are presented for information purposes only and reflects estimates made by Fairfax’s management that it considers reasonable. It does not purport to represent what Fairfax’s actual results of operations or financial condition would have been had the Transactions occurred on the dates indicated, nor is it necessarily indicative of future results of operations or financial condition. In addition to the matters noted above, the unaudited pro forma condensed combined financial statements do not reflect the effect of any cost or revenue synergies associated with combining Fairfax and Allied World.

The unaudited pro forma adjustments are preliminary and are based upon available information and certain assumptions described in the accompanying notes to the unaudited pro forma condensed combined financial statements that Fairfax’s management believes are reasonable under the circumstances. Detailed valuations have not yet been obtained and, accordingly, the fair value adjustments reflect preliminary estimates made by Fairfax’s management and are subject to change once the detailed analyses are performed and as additional information becomes available. However, Fairfax’s management believes the fair values recognized are based on reasonable estimates derived from currently available information. A final determination of the fair value of assets acquired and liabilities assumed will be based on the actual assets and liabilities of Allied World that exist as of the closing date of the Acquisition and, therefore, will be finalized in due course.

6

Fairfax Financial Holdings Limited

Pro Forma Condensed Combined Balance Sheet as at March 31, 2017

(unaudited—US $ millions)

Notes	Fairfax		Allied World (reclassified)		Co-investors in FFH Switzerland		Allied World special dividend			Acquisition of Allied World			Pro forma combined 94.6%		Squeeze out merger			Pro forma combined 100%
			4		5(a)		5(b)			5(c),(d),(e)					6
Assets
Holding company cash and investments	$	958.8	$	—	$	1,580.0	$	—		$	(1,605.4	)	$	933.4	$	(109.2	)	$	824.2
Insurance contract receivables	2,994.9		1,159.3		—		—			—			4,154.2		—			4,154.2
Portfolio investments	27,558.0		9,046.9		—		(438.0		)	—			36,166.9		—			36,166.9
Deferred premium acquisition costs	720.8		148.9		—		—			(148.9		)	720.8		—			720.8
Recoverable from reinsurers	4,039.3		2,324.2		—		—			—			6,363.5		—			6,363.5
Deferred income taxes	772.8		34.8		—		—			19.4			827.0		—			827.0
Goodwill and intangible assets	3,979.9		492.8		—		—			1,084.8			5,557.5		—			5,557.5
Other assets	2,767.9		220.6		—		—			—			2,988.5		—			2,988.5
Total assets	$	43,792.4	$	13,427.5	$	1,580.0	$	(438.0	)	$	(650.1	)	$	57,711.8	$	(109.2	)	$	57,602.6
Liabilities
Accounts payable and accrued liabilities	$	2,962.5	$	185.9	$	—	$	—		$	128.0		$	3,276.4	$	—		$	3,276.4
Income taxes payable	52.2		4.0		—		—			—			56.2		—			56.2
Short sale and derivative obligations	122.2		3.5		—		—			—			125.7		—			125.7
Funds withheld payable to reinsurers	405.4		202.9		—		—			—			608.3		—			608.3
Insurance contract liabilities	23,335.6		8,575.9		—		—			(148.9		)	31,762.6		—			31,762.6
Borrowings—holding company and insurance and reinsurance companies	3,902.3		817.0		—		—			385.7			5,105.0		—			5,105.0
Borrowings—non-insurance companies	776.8		—		—		—			—			776.8		—			776.8
Total liabilities	$	31,557.0	$	9,789.2	$	—	$	—		$	364.8		$	41,711.0	$	—		$	41,711.0
Equity
Common shareholders’ equity	$	8,326.5	$	3,638.3	$	—	$	(438.0	)	$	(1,161.3	)	$	10,365.5	$	37.2		$	10,402.7
Preferred stock	1,335.5		—		—		—			—			1,335.5		—			1,335.5
Shareholders’ equity attributable to shareholders of Fairfax	9,662.0		3,638.3		—		(438.0		)	(1,161.3		)	11,701.0		37.2			11,738.2
Non-controlling interests	2,573.4		—		1,580.0		—			146.4			4,299.8		(146.4		)	4,153.4
Total equity	12,235.4		3,638.3		1,580.0		(438.0		)	(1,014.9		)	16,000.8		(109.2		)	15,891.6
Total liabilities and equity	$	43,792.4	$	13,427.5	$	1,580.0	$	(438.0	)	$	(650.1	)	$	57,711.8	$	(109.2	)	$	57,602.6

See accompanying notes.

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Fairfax Financial Holdings Limited

Pro Forma Condensed Combined Statement of Earnings for the three months ended March 31, 2017

(unaudited—US $ millions except share and per share amounts)

Notes	Fairfax			Allied World (reclassified)			Acquisition of Allied World			Pro forma combined 94.6%			Squeeze out merger			Pro forma combined 100%
				4			5(a),(c)			7			6			7
Revenue
Gross premiums written	$	2,609.2		$	860.9		$	—		$	3,470.1		$	—		$	3,470.1
Net premiums written	2,275.0			676.1			—			2,951.1			—			2,951.1
Gross premiums earned	2,322.5			737.8			—			3,060.3			—			3,060.3
Premiums ceded to reinsurers	(337.6		)	(192.9		)	—			(530.5		)	—			(530.5		)
Net premiums earned	1,984.9			544.9			—			2,529.8			—			2,529.8
Interest and dividends	128.1			51.3			—			179.4			—			179.4
Share of profit of associates	27.1			1.0			—			28.1			—			28.1
Net gains (losses) on investments	(18.4		)	39.3			—			20.9			—			20.9
Other revenue	615.9			1.3			—			617.2			—			617.2
	$	2,737.6		$	637.8		$	—		$	3,375.4		$	—		$	3,375.4
Expenses
Losses on claims, gross	$	1,397.7		$	534.2		$	—		$	1,931.9		$	—		$	1,931.9
Losses on claims ceded to reinsurers	(232.4		)	(175.2		)	—			(407.6		)	—			(407.6		)
Losses on claims, net	1,165.3			359.0			—			1,524.3			—			1,524.3
Operating expenses	427.4			106.4			—			533.8			—			533.8
Commissions, net	390.8			77.1			—			467.9			—			467.9
Interest expense	70.6			10.4			—			81.0			—			81.0
Other expenses	583.3			7.1			—			590.4			—			590.4
	$	2,637.4		$	560.0		$	—		$	3,197.4		$	—		$	3,197.4
Earnings before income taxes	100.2			77.8			—			178.0			—			178.0
Provision for (recovery of) income taxes	24.9			(2.5		)	—			22.4			—			22.4
Net earnings	$	75.3		$	80.3		$	—		$	155.6		$	—		$	155.6
Attributable to:
Shareholders of Fairfax	$	82.6		$	80.3		$	(29.1	)	$	133.8		$	2.9		$	136.7
Non-controlling interests	(7.3		)	—			29.1			21.8			(2.9		)	18.9
	$	75.3		$	80.3		$	—		$	155.6		$	—		$	155.6
Net earnings per share	$	3.11		$	0.92					$	4.41					$	4.47
Net earnings per diluted share	$	3.03		$	0.90					$	4.32					$	4.37
Shares outstanding (000) (weighted average)	23,079			87,291						27,878						28,153
Shares outstanding (000) (weighted average) — diluted	23,705			89,133						28,504						28,779

See accompanying notes.

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Fairfax Financial Holdings Limited

Pro Forma Condensed Combined Statement of Earnings for the year ended December 31, 2016

(unaudited—US $ millions except share and per share amounts)

Notes	Fairfax			Allied World (reclassified)			Acquisition of Allied World			Pro forma combined 94.6%			Squeeze out merger			Pro forma combined 100%
				4			5(a),(c)			7			6			7
Revenue
Gross premiums written	$	9,534.3		$	3,065.8		$	—		$	12,600.1		$	—		$	12,600.1
Net premiums written	8,088.4			2,255.8			—			10,344.2			—			10,344.2
Gross premiums earned	9,209.7			3,059.7			—			12,269.4			—			12,269.4
Premiums ceded to reinsurers	(1,347.5		)	(715.6		)	—			(2,063.1		)	—			(2,063.1		)
Net premiums earned	7,862.2			2,344.1			—			10,206.3			—			10,206.3
Interest and dividends	555.2			204.1			—			759.3			—			759.3
Share of profit of associates	24.2			13.7			—			37.9			—			37.9
Net gains (losses) on investments	(1,203.6		)	6.2			—			(1,197.4		)	—			(1,197.4		)
Other revenue	2,061.6			12.4			—			2,074.0			—			2,074.0
	$	9,299.6		$	2,580.5		$	—		$	11,880.1		$	—		$	11,880.1
Expenses
Losses on claims, gross	$	5,682.9		$	1,918.6		$	—		$	7,601.5		$	—		$	7,601.5
Losses on claims ceded to reinsurers	(964.3		)	(416.8		)	—			(1,381.1		)	—			(1,381.1		)
Losses on claims, net	4,718.6			1,501.8			—			6,220.4			—			6,220.4
Operating expenses	1,597.7			422.2			—			2,019.9			—			2,019.9
Commissions, net	1,336.4			339.8			—			1,676.2			—			1,676.2
Interest expense	242.8			63.7			—			306.5			—			306.5
Other expenses	1,958.4			6.8			—			1,965.2			—			1,965.2
	$	9,853.9		$	2,334.3		$	—		$	12,188.2		$	—		$	12,188.2
Earnings (loss) before income taxes	(554.3		)	246.2			—			(308.1		)	—			(308.1		)
Recovery of income taxes	(159.6		)	(9.1		)	—			(168.7		)	—			(168.7		)
Net earnings (loss)	$	(394.7	)	$	255.3		$	—		$	(139.4	)	$	—		$	(139.4	)
Attributable to:
Shareholders of Fairfax	$	(512.5	)	$	255.3		$	(92.5	)	$	(349.7	)	$	9.3		$	(340.4	)
Non-controlling interests	117.8			—			92.5			210.3			(9.3		)	201.0
	$	(394.7	)	$	255.3		$	—		$	(139.4	)	$	—		$	(139.4	)
Net earnings (loss) per share	$	(24.18	)	$	2.89					$	(14.01	)				$	(13.54	)
Net earnings (loss) per diluted share	$	(24.18	)	$	2.84					$	(14.01	)				$	(13.54	)
Shares outstanding (000) (weighted average)	23,017			88,276						27,817						28,092
Shares outstanding (000) (weighted average) – diluted	23,017			89,801						27,817						28,092

See accompanying notes.

9

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

As at and for the three months ended March 31, 2017 and for the year ended December 31, 2016 (in US$ millions except per share amounts and as otherwise indicated)

1.Business Operations

Fairfax Financial Holdings Limited (“Fairfax”) is a holding company which, through its subsidiaries, is principally engaged in property and casualty insurance and reinsurance and the associated investment management. The holding company is federally incorporated and domiciled in Ontario, Canada. Fairfax Financial Holdings (Switzerland) GmbH (“FFH Switzerland”) is a limited liability company incorporated under the laws of Switzerland and an indirect subsidiary of Fairfax.

2.Description of Transaction

Allied World Assurance Company Holdings, AG (“Allied World”) is a Swiss holding company which, through its wholly-owned subsidiaries, is a global provider of a diversified portfolio of property and casualty insurance and reinsurance.

Pursuant to the agreement and plan of merger dated December 18, 2016 (the “Merger Agreement”) between Fairfax and Allied World announced on December 18, 2016, Fairfax and its co-investors indirectly acquired on July 6, 2017, pursuant to an offer to exchange made to all Allied World shareholders (the “Offer”), approximately 94.6% of the outstanding registered ordinary shares of Allied World (“Allied World Shares”) for an indirect 94.6% ownership interest. For each Allied World Share held, Allied World shareholders received (i) cash consideration of $23.00 and (ii) 0.057937 of a subordinate voting share of Fairfax (“Fairfax Shares”) (the “stock consideration”). Separate from the Acquisition, Allied World paid a cash dividend of $5.00 per share to all Allied World shareholders (the “Special Dividend”).

Holders of Allied World stock options and other stock-based awards (collectively, “stock-based awards”) had their awards vested upon closing of the Acquisition and subsequently received from Fairfax, depending on the award’s exercise price, cash consideration per award of up to the equivalent of $23.00 and 0.057937 of a Fairfax Share.

The unaudited pro forma condensed combined financial statements reflect the following that occurred as part of the Acquisition:

(i)Allied World declared the Special Dividend of $5.00 cash per share prior to the closing of the Acquisition.

(ii)Third party co-investors invested $1,580.0 of cash into FFH Switzerland for an equity interest of approximately 32.6% in FFH Switzerland.

(iii)The volume weighted average price of Fairfax Shares for the 20 trading days ending on the trading day prior to the expiry of the Offer was below the prescribed limit of $435.65 in the Offer, resulting in a total share exchange ratio of 0.057937 of a Fairfax Share per Allied World Share.

(iv)Fairfax agreed to settle and cancel all Allied World stock-based awards for aggregate consideration of approximately $137.5 upon closing of the Acquisition.

(v)FFH Switzerland acquired 94.6% of the outstanding Allied World Shares. Each Allied World Share was exchanged for $23.00 in cash and 0.057937 of a Fairfax Share, representing aggregate cash consideration of $1,905.4 and Fairfax Share consideration of $2,089.0 through the issuance of 4,799,497 Fairfax Shares.

10

(vi) The unaudited pro forma condensed combined financial statements also reflect the anticipated squeeze-out merger under Swiss law whereby the 5.4% non-controlling interest in Allied World will be acquired by FFH Switzerland on the same terms as in the Offer (the “Merger”).

The Offer and the Merger are together referred to herein as, the “Transactions”.

3. Basis of Presentation

The unaudited pro forma condensed combined financial statements give effect to FFH Switzerland’s acquisition of a 94.6% ownership interest in Allied World under the acquisition method of accounting, followed by an equity transaction to acquire the 5.4% non-controlling interest in Allied World. The unaudited pro forma condensed combined balance sheet gives effect to the Acquisition and Merger as if they had closed on March 31, 2017. The unaudited pro forma condensed combined statements of earnings for the three months ended March 31, 2017 and for the year ended December 31, 2016 give effect to the Acquisition and Merger as if they had closed on January 1, 2016.

The unaudited pro forma condensed combined financial statements were prepared by Fairfax management based on the unaudited interim consolidated financial statements as at and for the three months ended March 31, 2017, and the audited consolidated financial statements for the year ended December 31, 2016, of both Fairfax and Allied World. The unaudited pro forma condensed combined financial statements should therefore be read in conjunction with the following consolidated financial statements, including the notes thereto:

(i)audited consolidated financial statements of Fairfax as at and for the year ended December 31, 2016, prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”);

(ii)unaudited interim consolidated financial statements of Fairfax as at and for the three months ended March 31, 2017, prepared in accordance with IFRS relevant to the preparation of interim financial statements;

(iii)audited consolidated financial statements of Allied World as at and for the year ended December 31, 2016, prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”); and

(iv)unaudited condensed consolidated financial statements of Allied World as at and for the three months ended March 31, 2017, prepared in accordance with US GAAP.

The accounting policies applied to the unaudited pro forma condensed combined financial statements are consistent with those disclosed in Fairfax’s audited consolidated financial statements for the year ended December 31, 2016. Allied World’s US GAAP consolidated financial statements for the three months ended March 31, 2017 and for the year ended December 31, 2016 were assumed to be comparable to what would have resulted if they had been prepared in accordance with Fairfax’s IFRS accounting policies. Fairfax had reviewed Allied World’s US GAAP accounting policies and noted that they were similar to those of Fairfax under IFRS.

The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only. The unaudited pro forma adjustments included therein are based upon available information and certain assumptions that are believed to be reasonable in the circumstances.

The unaudited pro forma information presented, including the measurement of identifiable assets acquired and liabilities assumed, is based on preliminary estimates of fair values, available information and assumptions, and may be revised as additional information becomes available. The actual adjustments to Fairfax’s consolidated financial statements as a result of the Transactions will depend on a number of

11

factors, including additional information available, Fairfax’s evaluation of Allied World’s accounting policies, the fair value of the net assets of Allied World as of the Acquisition closing date and the timing and success of the anticipated Merger. Therefore, it is expected that the actual adjustments will differ from the unaudited pro forma adjustments, and the differences may be material.

The unaudited pro forma condensed combined balance sheet reflect the Transactions effected on March 31, 2017 while the unaudited pro forma condensed combined statements of earnings reflect the Transactions effected on January 1, 2016. The unaudited pro forma condensed combined financial information is not necessarily indicative of the results that would have been achieved if the transactions reflected therein had been completed on the dates indicated or the results which may be obtained in the future.

4.Presentation of Allied World historical consolidated financial statements

Certain items within Allied World’s consolidated financial statements for the three months ended March 31, 2017, and for the year ended December 31, 2016, have been reclassified to conform with Fairfax’s consolidated financial statement presentation, the more significant of which are explained below.

Balance sheet reclassifications:

·‘Cash and cash equivalents’, ‘Restricted cash’, ‘Fixed maturity investments’, ‘Equity securities’ and ‘Other invested assets’ were reclassified to ‘Portfolio Investments’.

·‘Funds held’ was reclassified to ‘Insurance contract receivables’.

·‘Prepaid reinsurance’ was reclassified to ‘Recoverable from reinsurers’.

·‘Accrued investment income’ and ‘Balances receivable on sale of investments’ were reclassified to ‘Other assets’.

·‘Balances due on purchases of investments’ was reclassified to ‘Accounts payable and accrued liabilities’.

Income statement reclassifications:

·‘Net investment income’ was reclassified to ‘Interest and dividends’.

·‘Acquisition costs’ was reclassified to ‘Commissions, net’.

·‘Amortization of intangible assets’ was reclassified to ‘Operating expenses’.

·‘Foreign exchange (gain) loss’ was reclassified to ‘Net gains (losses) on investments’.

5.Pro Forma Assumptions and Adjustments related to the Acquisition

5(a) Co-investors in FFH Switzerland

FFH Switzerland is the indirect subsidiary of Fairfax that acquired a 94.6% equity interest in Allied World. Upon all closing conditions having been met, third party co-investors invested $1,580.0 for an approximate 32.6% equity interest in FFH Switzerland, which represented a corresponding 30.8% indirect interest in Allied World upon completion of the Acquisition (increasing to a 32.6% indirect interest in Allied World upon completion of the Merger).

12

5(b) Special Dividend paid by Allied World

After completion of the Offer, Allied World declared a Special Dividend of $5.00 cash per share to all Allied World shareholders. The Special Dividend in aggregate was approximately $438.0, which reduced Allied World’s pre-acquisition cash and cash equivalents, and shareholders’ equity, accordingly.

5(c) Fair value of identifiable assets acquired and liabilities assumed

Purchase consideration:
Cash payment of $23.00 per Allied World Share	$	1,905.4
Issuance of 0.057937 of a Fairfax Share per Allied World Share	$	2,089.0
Liability to settle Allied World stock-based awards	$	137.5
	$	4,131.9
Fair value of 94.6% of Allied World’s net assets	$	2,554.3
Goodwill and intangible assets arising on acquisition of Allied World	$	1,577.6
Non-controlling interest (fair value of 5.4% of Allied World’s net assets)	$	146.4

The above determination of the fair value of identifiable assets acquired and liabilities assumed reflected the following assumptions:

(i)The carrying values of Allied World’s assets and liabilities at March 31, 2017 were assumed to approximate their fair values, except for goodwill and intangible assets, long term debt, accounts payable and accrued liabilities, deferred premium acquisition costs and unearned premiums (discussed further below). Allied World’s net assets were also adjusted for the $5.00 cash per share Special Dividend paid to all Allied World shareholders. It was noted that, with limited exceptions, Allied World accounts for its investment portfolio using the fair value option under US GAAP. Furthermore, as a provider of property and casualty insurance and reinsurance, Allied World’s claims liabilities are generally current given the shorter duration of property and casualty insurance contracts.

(ii)In accordance with the requirements of acquisition accounting, existing goodwill in the financial statements of the acquiree is eliminated, and a new goodwill balance is determined upon establishing fair values for the identifiable assets acquired and liabilities assumed.

(iii)Deferred premium acquisition costs are considered to have a fair value of nil as they do not represent future cash inflows or outflows. The fair value of future losses associated with unearned premiums was approximated by deducting the carrying value of deferred premium acquisition costs from the carrying value of unearned premiums.

(iv)Allied World’s accounts payable and accrued liabilities included $9.5 at March 31, 2017 related to outstanding cash equivalent stock awards that are part of Fairfax’s liability of $137.5 to settle all of Allied World’s stock-based awards. Deferred tax on the adjustment was $2.2 based on the applicable tax rates of the various jurisdictions where the awards will be settled.

(v)The fair value of Allied World’s long term debt exceeded its carrying value by $35.7 at March 31, 2017. Deferred tax on the fair value adjustment was not recorded as the applicable statutory tax rate in Bermuda, where the debt was issued, is 0%.

(vi)Allied World’s historical shareholders’ equity, which includes common shares, treasury shares, accumulated other comprehensive loss, and retained earnings, is eliminated on consolidation. Allied World’s shareholders’ equity was adjusted for the Special Dividend paid to all Allied World shareholders.

(vii)Goodwill and intangible assets arising on the acquisition of Allied World are estimated to be $1,577.6 (upon assigning a preliminary value of nil to Allied World’s previously recognized

13

intangible assets of $104.2, with a deferred tax adjustment of $21.6). Finite-lived and indefinite- lived intangible assets expected to be separately recognized include the Allied World brand name, insurance licenses, customer relationships, distribution networks and Lloyd’s participation rights. Any such intangible assets, which could be material in amount, can only be determined upon completion of ongoing detailed valuation work.

5(d) Short term financing

To facilitate the closing of the Acquisition and the anticipated Merger, Fairfax entered into a short term bridge financing loan of $350.0 to bridge the closing of certain sale transactions involving non-core businesses that Fairfax has no ability to control long-term.

5(e) Transaction costs

Transaction costs for the Acquisition are estimated to be approximately $50, and are primarily comprised of investment banking, accounting, tax, legal and other costs associated with completing the Acquisition. These transaction costs are reflected as an adjustment to common shareholders’ equity in the unaudited pro forma condensed combined balance sheet, and not in the unaudited pro forma condensed combined statements of earnings, as these expenses are directly incremental to the Acquisition and are non-recurring in nature.

6.Pro Forma Assumptions and Adjustments related to the Merger

The unaudited pro forma condensed combined financial statements assume the Merger takes place immediately after completion of the Acquisition. In accordance with the Merger Agreement, the non-controlling interest will receive the same consideration as Allied World shareholders who participated in the Offer.

Consideration paid to non-controlling interest:
Cash payment of $23.00 per Allied World Share	$	109.2
Issuance of 0.057937 of a Fairfax Share per Allied World Share	$	119.8
	$	229.0
Carrying value of non-controlling interest	$	146.4
Charge to common shareholders’ equity	$	82.6

7.Earnings per Share

Unaudited pro forma combined net earnings (loss) per share and net earnings (loss) per diluted share in the condensed combined statements of earnings for the three months ended March 31, 2017, and for the year ended December 31, 2016, assumed Fairfax issued 4,799,497 and 275,164 Fairfax Shares to Allied World shareholders on January 1, 2016 in connection with the Acquisition and Merger, respectively, and reflected the allocation of 36.2% and 32.6% of the net earnings of Allied World to non-controlling interests upon completion of the Acquisition and Merger, respectively.

14

SCHEDULE B

Unaudited condensed consolidated financial statements of Allied World as at and for
the three months ended March 31, 2017, together with the notes thereto; and

Audited consolidated financial statements of Allied World as at and for the year ended
December 31, 2016, together with the notes thereto and the report of the independent
registered public accounting firm thereon.

15

PART I
FINANCIAL INFORMATION

Item 1.           Financial Statements.

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

as of March 31, 2017 and December 31, 2016
(Expressed in millions of United States dollars, except share and per share amounts)

	As of March 31, 2017			As of December 31, 2016
ASSETS:
Fixed maturity investments trading, at fair value (amortized cost: 2017: $6,535.6; 2016: $6,874.4)	$	6,473.1		$	6,737.7
Equity securities trading, at fair value (cost: 2017: $237.7; 2016: $235.0)	255.2			243.9
Other invested assets	966.6			960.7
Total investments	7,694.9			7,942.3
Cash and cash equivalents	1,284.9			720.9
Restricted cash	60.6			76.5
Insurance balances receivable	862.2			784.0
Funds held	297.1			466.8
Prepaid reinsurance	478.7			486.4
Reinsurance recoverable	1,725.6			1,625.0
Reinsurance recoverable on paid losses	119.9			104.4
Accrued investment income	32.2			36.0
Net deferred acquisition costs	148.9			121.1
Goodwill	388.6			389.7
Intangible assets	104.2			104.7
Balances receivable on sale of investments	23.9			114.7
Net deferred tax assets	34.8			38.7
Other assets	171.0			167.8
Total assets	$	13,427.5		$	13,179.0
LIABILITIES:
Reserve for losses and loss expenses	$	6,762.7		$	6,639.2
Unearned premiums	1,813.2			1,688.1
Reinsurance balances payable	202.9			223.3
Balances due on purchases of investments	58.2			79.7
Senior notes:
Principal amount	800.0			800.0
Less unamortized discount and debt issuance costs	5.6			5.8
Senior notes, net	794.4			794.2
Other long-term debt	22.6			22.0
Accounts payable and accrued liabilities	135.2			180.7
Total liabilities	$	9,789.2		$	9,627.2
SHAREHOLDERS’ EQUITY:
Common shares: 2017 and 2016: par value CHF 4.10 per share (2017: 93,586,418; 2016: 93,586,418 shares issued and 2017: 87,483,715; 2016: 87,098,120 shares outstanding)	378.8			378.8
Treasury shares, at cost (2017: 6,102,703; 2016: 6,488,298)	(223.6		)	(233.8		)
Accumulated other comprehensive loss	(5.9		)	(11.6		)
Retained earnings	3,489.0			3,418.4
Total shareholders’ equity	3,638.3			3,551.8
Total liabilities and shareholders’ equity	$	13,427.5		$	13,179.0

See accompanying notes to the consolidated financial statements.

1

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
for the three months ended March 31, 2017 and 2016
(Expressed in millions of United States dollars, except share and per share amounts)

	Three Months Ended March 31,
	2017			2016
REVENUES:
Gross premiums written	$	860.9		$	863.5
Premiums ceded	(184.8		)	(159.5		)
Net premiums written	676.1			704.0
Change in unearned premiums	(131.2		)	(123.9		)
Net premiums earned	544.9			580.1
Net investment income	52.3			53.3
Net realized investment gains	40.7			18.9
Other income	1.3			0.6
Total revenue	639.2			652.9
EXPENSES:
Net losses and loss expenses	359.0			372.4
Acquisition costs	77.1			88.3
General and administrative expenses	104.1			96.4
Other expense	7.1			1.1
Amortization of intangible assets	2.3			2.5
Interest expense	10.4			20.0
Foreign exchange loss (gain)	1.4			(3.0		)
Total expenses	561.4			577.7
Income before income taxes	77.8			75.2
Income tax (benefit) expense	(2.5		)	1.1
NET INCOME	80.3			74.1
Other comprehensive income: foreign currency translation adjustment	5.7			3.1
COMPREHENSIVE INCOME	$	86.0		$	77.2
PER SHARE DATA:
Basic earnings per share	$	0.92		$	0.82
Diluted earnings per share	$	0.90		$	0.81
Weighted average common shares outstanding	87,291,369			90,254,512
Weighted average common shares and common share equivalents outstanding	89,133,212			91,559,225
Dividends paid per share	$	—		$	0.260

See accompanying notes to the consolidated financial statements.

2

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
for the three months ended March 31, 2017 and 2016
(Expressed in millions of United States dollars)

	Three Months Ended March 31,
	2017			2016
Share capital
Balance at the beginning of the year	$	378.8		$	386.7
Shares canceled	—			(11.6		)
Balance at the end of the year	378.8			375.1
Treasury shares
Balance at the beginning of the year	(233.8		)	(155.1		)
Stock compensation	10.2			8.8
Shares repurchased	—			(50.0		)
Shares canceled	—			50.0
Balance at the end of the year	(223.6		)	(146.3		)
Accumulated other comprehensive loss
Balance at the beginning of the year	(11.6		)	(9.3		)
Foreign currency translation adjustment	5.7			3.1
Balance at the end of the year	(5.9		)	(6.2		)
Retained earnings
Balance at the beginning of the year	3,418.4			3,310.2
Net income	80.3			74.1
Dividends	—			(23.4		)
Stock compensation	(9.7		)	(9.7		)
Shares canceled	—			(38.4		)
Balance at the end of the year	3,489.0			3,312.8
Total shareholders’ equity	$	3,638.3		$	3,535.4

3

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 2017 and 2016
(Expressed in millions of United States dollars)

	Three Months Ended March 31,
	2017			2016
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income	$	80.3		$	74.1
Adjustments to reconcile net income to cash provided by operating activities:
Net realized losses (gains) on sales of investments	13.1			(12.0		)
Mark to market adjustments	(52.8		)	(27.1		)
Stock compensation expense	5.5			3.9
Undistributed income of equity method investments	1.4			9.2
Changes in:
Reserve for losses and loss expenses, net of reinsurance recoverables	22.9			86.9
Unearned premiums, net of prepaid reinsurance	132.7			125.5
Insurance balances receivable	(78.3		)	(139.5		)
Reinsurance recoverable on paid losses	(15.5		)	13.8
Funds held	169.7			287.7
Reinsurance balances payable	(20.4		)	7.3
Net deferred acquisition costs	(27.8		)	(21.7		)
Net deferred tax assets	3.9			(0.6		)
Accounts payable and accrued liabilities	(45.5		)	(50.1		)
Other items, net	6.2			(9.9		)
Net cash provided by operating activities	195.4			347.5
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of trading securities	(779.8		)	(1,530.0		)
Purchases of other invested assets	(11.4		)	(8.1		)
Sales of trading securities	1,141.9			1,414.6
Sales of other invested assets	0.5			38.7
Purchases of fixed assets	(1.0		)	(0.6		)
Change in restricted cash	15.9			(26.8		)
Net cash provided by (used in) investing activities	366.1			(112.2		)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Dividends paid	—			(23.4		)
Proceeds from the exercise of stock options, net of taxes paid	1.4			0.4
Repayment of other long-term debt	(0.1		)	(0.1		)
Share repurchases	—			(50.0		)
Net cash provided by (used in) financing activities	1.3			(73.1		)
Effect of exchange rate changes on foreign currency cash	1.2			1.8
NET INCREASE IN CASH AND CASH EQUIVALENTS	564.0			164.0
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	720.9			608.0
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,284.9		$	772.0
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	0.2		$	1.0
Cash paid for interest expense	$	—		$	18.8

See accompanying notes to the consolidated financial statements.

4

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

1.   GENERAL

Allied World Assurance Company Holdings, AG, a Swiss holding company (“Allied World Switzerland”), through its wholly-owned subsidiaries (collectively, the “Company”), is a global provider of a diversified portfolio of property and casualty insurance and reinsurance. References to “$” are to the lawful currency of the United States and to “CHF” are to the lawful currency of Switzerland.

On December 18, 2016, the Company entered into a merger agreement with Fairfax Financial Holdings Limited (“Fairfax”), whereby Fairfax will acquire all of the outstanding ordinary shares of Allied World Switzerland. Under the terms of the merger agreement, Allied World Switzerland shareholders will receive a combination of Fairfax subordinate voting shares and cash having a value equal to $54.00 per Allied World Switzerland share (based on the closing price of Fairfax’s subordinate voting shares on December 16, 2016). The merger agreement has been unanimously approved by both companies’ Boards of Directors. The acquisition is expected to be consummated following the satisfaction of customary closing conditions. The acquisition is anticipated to close in the second quarter of 2017. There can be no assurances that the acquisition will occur.

2.   BASIS OF PREPARATION AND CONSOLIDATION

These unaudited condensed consolidated financial statements include the accounts of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with Article 10 of Regulation S-X as promulgated by the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments that are normal and recurring in nature and necessary for a fair presentation of financial position and results of operations as of the end of and for the periods presented. The results of operations for any interim period are not necessarily indicative of the results for a full year.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates reflected in the Company’s financial statements, include, but are not limited to:

·The premium estimates for certain reinsurance agreements,

·Recoverability of deferred acquisition costs,

·The reserve for outstanding losses and loss expenses,

·Valuation of ceded reinsurance recoverables,

·Determination of impairment of goodwill and other intangible assets, and

·Valuation of financial instruments.

Intercompany accounts and transactions have been eliminated on consolidation and all entities meeting consolidation requirements have been included in the unaudited condensed consolidated financial statements.

These unaudited condensed consolidated financial statements, including these notes, should be read in conjunction with the Company’s audited consolidated financial statements, and related notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

3. NEW ACCOUNTING PRONOUNCEMENTS

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update 2016-02, “Leases” (“ASU 2016-02”). ASU 2016-02 changes current U.S. GAAP for lessees to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous U.S. GAAP. ASU 2016-02 is effective for annual periods beginning after January 1, 2019, including interim periods. Early application is permitted. The Company is currently assessing the impact the adoption of ASU 2016-02 will have on future financial statements and disclosures.

5

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

Specifically, the Company is still evaluating its existing leases to determine the appropriate classification under the new standard and whether it will adopt the practical expedients allowed under ASU 2016-02.

In June 2016, the FASB issued Accounting Standards Update 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 modifies U.S. GAAP related to the recognition of credit losses by replacing the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 would apply to financial assets such as loans, debt securities, trade receivables, off-balance sheet credit exposures, reinsurance receivables, and other financial assets that have the contractual right to receive cash. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. The Company’s invested assets are measured at fair value through net income, and therefore those invested assets would not be impacted by the adoption of ASU 2016-13. The Company has other financial assets, such as reinsurance recoverables, that could be impacted by the adoption of ASU 2016-13. ASU 2016-13 is effective for annual periods beginning after January 1, 2020, including interim periods. The Company is currently assessing the impact the adoption of ASU 2016-13 will have on future financial statements and disclosures. Specifically, the Company is developing a credit impairment methodology for its reinsurance recoverables based on the guidance in ASU 2016-13.

In August 2016, the FASB issued Accounting Standards Update 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 clarifies the classification of receipts and payments in the statement of cash flows. ASU 2016-15 provides guidance related to (1) settlement and payment of zero coupon debt instruments, (2) contingent consideration, (3) proceeds from settlement of insurance claims, (4) proceeds from settlement of corporate and bank-owned life insurance policies, (5) distributions from equity method investees, (6) cash receipts from beneficial interests obtained by a transferor, and (7) general guidelines for cash receipts and payments that have more than one aspect of classification. The only item above that will impact the Company is the guidance related to distributions from equity method investees. The Company currently utilizes the nature of distribution approach for classifying such distributions and will adopt ASU 2016-15 for reporting periods beginning January 1, 2018. As the nature of distribution approach is an acceptable method under ASU 2016-15, the Company does not expect the adoption of ASU 2016-15 to have a material impact on the statement of cash flows.

6

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

4. INVESTMENTS

a) Trading Securities

Securities accounted for at fair value with changes in fair value recognized in the unaudited condensed consolidated statements of operations and comprehensive income (the “consolidated income statements”) by category are as follows:

	March 31, 2017				December 31, 2016
	Fair Value		Amortized Cost		Fair Value		Amortized Cost
U.S. government and government agencies	$	1,410.5	$	1,433.9	$	1,426.0	$	1,454.5
Non-U.S. government and government agencies	543.2		554.2		469.9		496.5
States, municipalities and political subdivisions	41.7		40.7		354.1		355.8
Corporate debt:
Financial institutions	1,046.4		1,043.2		1,032.7		1,033.6
Industrials	1,379.2		1,375.8		1,321.3		1,322.3
Utilities	153.2		153.3		140.0		140.7
Mortgage-backed:
Agency mortgage-backed	595.6		593.9		614.5		612.5
Non-agency residential mortgage-backed	23.4		22.0		23.9		22.7
Commercial mortgage-backed	467.1		491.5		598.0		636.1
Asset-backed	812.8		827.3		757.3		772.6
Total fixed maturity investments, trading	$	6,473.1	$	6,535.6	$	6,737.7	$	6,847.4

	March 31, 2017				December 31, 2016
	Fair Value		Original Cost		Fair Value		Original Cost
Equity securities	$	255.2	$	237.7	$	243.9	$	235.0
Other invested assets	902.7		842.6		897.8		831.2
	$	1,157.9	$	1,080.3	$	1,141.7	$	1,066.2

Other invested assets, included in the table above, include investments in private equity funds and hedge funds that are accounted for at fair value, but excludes other private securities described below in Note 4(b) that are accounted for using the equity method of accounting.

7

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

b) Other Invested Assets

Details regarding the carrying value, redemption characteristics and unfunded investment commitments of the other invested assets portfolio as of March 31, 2017 and December 31, 2016 were as follows:

Investment Type	Carrying Value as of March 31, 2017		Investments with Redemption Restrictions		Estimated Remaining Restriction Period	Investments without Redemption Restrictions		Redemption Frequency(1)	Redemption Notice Period(1)	Unfunded Commitments
Private equity	$	281.5	$	281.5	1 - 15 Years	$	—			$	208.8
Levered credit	211.2		211.2		3 - 9 Years	—				189.2
Real estate	68.9		68.9		6 - 8 Years	—				191.6
Distressed	4.8		4.8		1 Year	—				3.8
Total private equity	566.4		566.4			—				593.4
Distressed	173.3		—			173.3		Quarterly	60 Days	—
Relative value credit	87.4		—			87.4		Quarterly	60 Days	—
Equity long/short	65.1		—			65.1		Quarterly	45 Days	—
Fund of funds	10.5		—			10.5		Quarterly	60 Days	—
Total hedge funds	336.3		—			336.3				—
Total other invested assets at fair value	902.7		566.4			336.3				593.4
Other private securities	63.9		—			63.9				—
Total other invested assets	$	966.6	$	566.4		$	400.2			$	593.4

Investment Type	Carrying Value as of December 31, 2016		Investments with Redemption Restrictions		Estimated Remaining Restriction Period	Investments without Redemption Restrictions		Redemption Frequency(1)	Redemption Notice Period(1)	Unfunded Commitments
Private equity	$	281.0	$	281.0	1 - 15 Years	$	—			$	219.3
Levered credit	204.9		204.9		3 - 9 Years	—				190.8
Real estate	68.9		68.9		6 - 8 Years	—				191.6
Distressed	5.0		5.0		1 Year	—				3.8
Total private equity	559.8		559.8			—				605.5
Distressed	175.3		—			175.3		Quarterly	60 Days	—
Relative value credit	84.8		—			84.8		Quarterly	60 Days	—
Equity long/short	67.9		—			67.9		Quarterly	45 Days	—
Fund of Funds	10.0		—			10.0		Quarterly	60 Days	—
Total hedge funds	338.0		—			338.0				—
Total other invested assets at fair value	897.8		559.8			338.0				605.5
Other private securities	62.9		—			62.9				—
Total other invested assets	$	960.7	$	559.8		$	400.9			$	605.5

(1) The redemption frequency and notice periods only apply to the investments without redemption restrictions.

In general, the Company has invested in hedge funds that require at least 30 days’ notice of redemption and may be redeemed on a monthly, quarterly, semi-annual, annual or longer basis, depending on the fund. Certain hedge funds have lock-up periods ranging from one to three years from initial investment. A lock-up period refers to the initial amount of time an investor is contractually required to invest before having the ability to redeem. Funds that provide for periodic redemptions may, depending on the funds’ governing documents, have the ability to deny or delay a redemption request, called a “gate.” The fund may implement this restriction if the aggregate amount of redemption requests as of a particular date exceeds a specified

8

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

level, generally ranging from 15% to 25% of the fund’s net assets. The gate is a method for executing an orderly redemption process to reduce the possibility of adversely affecting investors in the fund. Typically, the imposition of a gate delays a portion of the requested redemption, with the remaining portion settled in cash sometime after the redemption date. Certain funds may impose a redemption fee on early redemptions. Interests in private equity funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the fund.

The following describes each investment type:

·Private equity (primary and secondary): Primary equity funds include funds that may invest in companies and general partnership interests, as well as direct investments. Secondary funds buy limited partnership interests from existing limited partners of primary private equity funds. As owners of private equity, funds may seek liquidity by selling their existing interests, plus any remaining commitment, to secondary market participants. These funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the funds.

·Levered credit (including mezzanine debt): Levered credit funds invest across the capital structures of upper middle market and middle market companies in connection with leveraged buyouts, mergers and acquisitions, recapitalizations, growth financings, refinancings and other corporate purposes. The most common position in the capital structure of mezzanine funds will be between the senior secured debt holder and the equity; however, the funds in which we are invested may include secured debt, subordinated debt, preferred stock and/or private equity. These funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the funds.

·Real estate funds: Private real estate funds invest directly (through debt and equity) in commercial real estate (multifamily, industrial, office, student housing and retail) as well as residential property. Real estate managers have diversified portfolios that generally follow core, core-plus, value-added or opportunistic strategies. These funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the funds.

·Distressed funds: In distressed debt investing, managers take positions in the debt of companies experiencing significant financial difficulties, including bankruptcy, or in certain positions of the capital structure of structured securities. The manager relies on the fundamental analysis of these securities, including the claims on the assets and the likely return to bondholders. Certain funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the funds.

·Relative value credit funds: These funds seek to take exposure to credit-sensitive securities, long and/or short, based upon credit analysis of issuers and securities and credit market views.

·Equity long/short funds: In equity long/short funds, managers take long positions in companies they deem to be undervalued and short positions in companies they deem to be overvalued. Long/short managers may invest in countries, regions or sectors and vary by their use of leverage and by their targeted net long position.

·Fund of funds: Fund of funds allocate assets among multiple investment managers unaffiliated with the fund of funds sponsor employing a variety of proprietary investment strategies. Fund of funds strategies will invest in a portfolio of funds that primarily pursue the following investment strategies: equity, macro, event driven and credit.

·Other private securities: These securities mostly include strategic non-controlling minority investments in private asset management companies and other insurance related investments that are accounted for using the equity method of accounting.

9

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

c)   Net Investment Income

	Three Months Ended March 31,
	2017			2016
Fixed maturity investments	$	44.9		$	48.0
Equity securities	2.9			1.8
Other invested assets: hedge funds and private equity	7.0			4.7
Other invested assets: other private securities	1.0			3.1
Cash and cash equivalents	0.9			0.5
Expenses	(4.4		)	(4.8		)
Net investment income	$	52.3		$	53.3

d)   Components of Realized Gains and Losses

	Three Months Ended March 31,
	2017			2016
Gross realized gains on sale of invested assets	$	23.8		$	54.0
Gross realized losses on sale of invested assets	(32.3		)	(41.9		)
Net realized and unrealized losses on derivatives	(4.0		)	(22.9		)
Mark-to-market gains (losses):
Fixed maturity investments, trading	46.7			62.3
Equity securities, trading	12.9			(15.1		)
Other invested assets, trading	(6.4		)	(17.5		)
Net realized investment gains	$	40.7		$	18.9

e)   Pledged Assets

As of March 31, 2017 and December 31, 2016, $2,719.8 million and $2,687.7 million, respectively, of cash and cash equivalents and investments were deposited, pledged or held in trust accounts in favor of ceding companies and other counterparties or government authorities to comply with reinsurance contract provisions, insurance laws and other contract provisions.

In addition, as of March 31, 2017 and December 31, 2016, a further $575.3 million and $587.6 million, respectively, of cash and cash equivalents and investments were pledged as collateral for the Company’s letter of credit facilities. See Note 11(g) to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for details on the Company’s credit facilities.

10

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

5. DERIVATIVE INSTRUMENTS

As of March 31, 2017 and December 31, 2016, none of the Company’s derivatives were designated as hedges for accounting purposes. The following table summarizes information on the location and amounts of derivative fair values on the consolidated balance sheets:

	March 31, 2017								December 31, 2016
	Asset Derivative Notional Amount		Asset Derivative Fair Value		Liability Derivative Notional Amount		Liability Derivative Fair Value		Asset Derivative Notional Amount		Asset Derivative Fair Value		Liability Derivative Notional Amount		Liability Derivative Fair Value
Foreign exchange contracts	$	1.8	$	—	$	57.9	$	0.3	$	103.2	$	10.4	$	4.1	$	0.1
Interest rate swaps	—		—		100.0		0.2		—		—		—		—
Insurance contracts	225.0		6.5		—		—		225.0		7.4		—		—
Reinsurance contracts	—		—		120.0		3.4		—		—		110.0		4.0
Total derivatives	$	226.8	$	6.5	$	277.9	$	3.9	$	328.2	$	17.8	$	114.1	$	4.1

Derivative assets and derivative liabilities are classified within “other assets” or “accounts payable and accrued liabilities” on the consolidated balance sheets.

The following table provides the net realized and unrealized gains (losses) on derivatives not designated as hedges recorded on the consolidated income statements:

	Three Months Ended March 31,
	2017			2016
Foreign exchange contracts	$	0.8		$	2.3
Total included in foreign exchange loss (gain)	0.8			2.3
Foreign exchange contracts	(0.8		)	(14.9		)
Interest rate swaps and futures	(3.2		)	(8.0		)
Total included in net realized investment gains	(4.0		)	(22.9		)
Insurance contracts	(0.9		)	—
Reinsurance contracts	0.2			(0.4		)
Total included in other income (other expense)	(0.7		)	(0.4		)
Total realized and unrealized losses on derivatives	$	(3.9	)	$	(21.0	)

Derivative Instruments Not Designated as Hedging Instruments

The Company is exposed to foreign currency risk in its investment portfolio. Accordingly, the fair values of the Company’s investment portfolio are partially influenced by the change in foreign exchange rates. These foreign currency hedging activities have not been designated as specific hedges for financial reporting purposes.

The Company’s insurance and reinsurance subsidiaries and branches operate in various foreign countries and consequently the Company’s underwriting portfolio is exposed to foreign currency risk. The Company manages foreign currency risk by seeking to match liabilities under the insurance policies and reinsurance contracts that it writes and that are payable in foreign currencies with cash and investments that are denominated in such currencies. When necessary, the Company may also use derivatives to economically hedge unmatched foreign currency exposures, specifically forward contracts and currency options.

The Company purchases and sells interest rate future and interest rate swap contracts to actively manage the duration and yield curve positioning of its fixed income portfolio. Interest rate futures and interest rate swaps can efficiently increase or decrease the overall duration of the portfolio. Additionally, interest rate future and interest rate swap contracts can be utilized to obtain the desired position along the yield curve in order to protect against certain future yield curve shapes. In addition, the Company purchases options to actively manage its equity portfolio.

11

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

The Company has also entered into insurance and reinsurance contracts that are required to be accounted for as derivatives. This will be the case when the insurance or reinsurance contract provides indemnification to the insured or cedent as a result of a change in a variable versus an identifiable insurable event, such as single-trigger industry loss warranties. The Company considers these insurance and reinsurance contracts to be an extension of its overall insurance operations.

6. FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon whether the inputs to the valuation of an asset or liability are observable or unobservable in the market at the measurement date, with quoted market prices being the highest level (Level 1) and unobservable inputs being the lowest level (Level 3). A fair value measurement will fall within the level of the hierarchy based on the input that is significant to determining such measurement. The three levels are defined as follows:

·Level 1: Observable inputs to the valuation methodology that are quoted prices (unadjusted) for identical assets or liabilities in active markets.

·Level 2: Observable inputs to the valuation methodology other than quoted market prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets in markets that are not active and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

·Level 3: Inputs to the valuation methodology that are unobservable for the asset or liability.

12

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

The following table shows the fair value of the Company’s financial instruments and where in the fair value hierarchy the fair value measurements are included as of the dates indicated below:

March 31, 2017	Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
ASSETS:
Fixed maturity investments:
U.S. government and government agencies	$	1,410.5	$	1,410.5	$	1,357.5	$	53.0	$	—
Non-U.S. government and government agencies	543.2		543.2		—		543.2		—
States, municipalities and political subdivisions	41.7		41.7		—		41.7		—
Corporate debt:
Financial institutions	1,046.4		1,046.4		—		1,044.4		2.0
Industrials	1,379.2		1,379.2		—		1,379.2		—
Utilities	153.2		153.2		—		153.2		—
Mortgage-backed:
Agency mortgage-backed	595.6		595.6		—		444.3		151.3
Non-agency residential mortgage-backed	23.4		23.4		—		23.4		—
Commercial mortgage-backed	467.1		467.1		—		467.1		—
Asset-backed	812.8		812.8		—		762.8		50.0
Total fixed maturity investments	$	6,473.1	$	6,473.1	$	1,357.5	$	4,912.3	$	203.3
Equity securities	255.2		255.2		230.7		—		24.5
Other invested assets(1)	902.7		902.7		—		—		—
Total investments	$	7,631.0	$	7,631.0	$	1,588.2	$	4,912.3	$	227.8
Derivative assets:
Insurance contracts	$	6.5	$	6.5	$	—	$	—	$	6.5
LIABILITIES:
Derivative liabilities:
Foreign exchange contracts	$	0.3	$	0.3	$	—	$	0.3	$	—
Interest rate swaps	0.2		0.2		—		0.2		—
Reinsurance contracts	3.4		3.4		—		—		3.4
Senior notes	794.4		825.6		—		825.6		—
Other long-term debt	22.6		27.1		—		27.1		—

13

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

December 31, 2016	Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
ASSETS:
Fixed maturity investments:
U.S. government and government agencies	$	1,426.0	$	1,426.0	$	1,379.6	$	46.4	$	—
Non-U.S. government and government agencies	469.9		469.9		—		469.9		—
States, municipalities and political subdivisions	354.1		354.1		—		354.1		—
Corporate debt:
Financial institutions	1,032.7		1,032.7		—		1,031.2		1.5
Industrials	1,321.3		1,321.3		—		1,321.3		—
Utilities	140.0		140.0		—		140.0		—
Mortgage-backed:
Agency mortgage-backed	614.5		614.5		—		475.9		138.7
Non-agency residential mortgage-backed	23.9		23.9		—		23.9		—
Commercial mortgage-backed	598.0		598.0		—		598.0		—
Asset-backed	757.3		757.3		—		697.8		59.5
Total fixed maturity investments	$	6,737.7	$	6,737.7	$	1,379.6	$	5,158.5	$	199.7
Equity securities	243.9		243.9		219.2		—		24.7
Other invested assets(1)	897.8		897.8		—		—		—
Total investments	$	7,879.4	$	7,879.4	$	1,598.8	$	5,158.5	$	224.4
Derivative assets:
Foreign exchange contracts	$	10.4	$	10.4	$	—	$	10.4	$	—
Insurance contracts	7.4		7.4		—		—		7.4
LIABILITIES:
Derivative liabilities:
Foreign exchange contracts	$	0.1	$	0.1	$	—	$	0.1	$	—
Reinsurance contracts	4.0		4.0		—		—		4.0
Senior notes	794.2		827.1		—		827.1		—
Other long-term debt	22.0		26.7		—		26.7		—

(1) In accordance with U.S. GAAP, other invested assets, excluding other private securities, are measured at fair value using the net asset value per share (or its equivalent) practical expedient and have not been classified in the fair value hierarchy.

“Other invested assets” exclude other private securities that the Company did not measure at fair value, but are accounted for using the equity method of accounting. Derivative assets and derivative liabilities relating to foreign exchange contracts and interest rate swaps are classified within “other assets” or “accounts payable and accrued liabilities” on the consolidated balance sheets.

The following describes the valuation techniques used by the Company to determine the fair value of financial instruments held as of the balance sheet date.

Fair Value of Financial Instruments

U.S. government and government agencies: Comprised primarily of bonds issued by the U.S. Treasury, the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association. The fair values of the Company’s U.S. government securities are based on quoted market prices in active markets and are included in the Level 1 fair value hierarchy. The Company believes the market for U.S. Treasury securities is an actively traded market given the high level of daily trading volume. The fair values of U.S. government agency securities are priced using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. government agency securities are included in the Level 2 fair value hierarchy.

14

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

Non-U.S. government and government agencies: Comprised of fixed income obligations of non-U.S. governmental entities. The fair values of these securities are based on prices obtained from international indices and are included in the Level 2 fair value hierarchy.

States, municipalities and political subdivisions: Comprised of fixed income obligations of U.S. domiciled state and municipality entities. The fair values of these securities are based on prices obtained from the new issue market, and are included in the Level 2 fair value hierarchy.

Corporate debt: Comprised of bonds issued by or loan obligations of corporations that are diversified across a wide range of issuers and industries. The fair value of corporate debt that are short-term are priced using spread above the LIBOR yield curve, and the fair value of corporate debt that are long-term are priced using the spread above the risk-free yield curve. The spreads are sourced from broker-dealers, trade prices and the new issue market. As the significant inputs used to price corporate bonds are observable market inputs, the fair values of corporate debt are included in the Level 2 fair value hierarchy, unless the significant inputs used to price the corporate debt securities are broker-dealer quotes and the Company is not able to determine if those quotes are based on observable market inputs, in which case the fair value is included in the Level 3 hierarchy.

Mortgage-backed: Primarily comprised of residential and commercial mortgages originated by both U.S. government agencies (such as the Federal National Mortgage Association) and non-U.S. government agencies. The fair values of mortgage-backed securities originated by U.S. government agencies and non-U.S. government agencies are based on a pricing model that incorporates prepayment speeds and spreads to determine the appropriate average life of mortgage-backed securities. The spreads are sourced from broker-dealers, trade prices and the new issue market. As the significant inputs used to price the mortgage-backed securities are observable market inputs, the fair values of these securities are included in the Level 2 fair value hierarchy, unless the significant inputs used to price the mortgage-backed securities are broker-dealer quotes and the Company is not able to determine if those quotes are based on observable market inputs, in which case the fair value is included in the Level 3 hierarchy.

Asset-backed: Principally comprised of bonds backed by pools of automobile loan receivables, home equity loans, credit card receivables and collateralized loan obligations originated by a variety of financial institutions. The fair values of asset-backed securities are priced using prepayment speed and spread inputs that are sourced from the new issue market or broker-dealer quotes. As the significant inputs used to price the asset-backed securities are observable market inputs, the fair values of these securities are included in the Level 2 fair value hierarchy, unless the significant inputs used to price the asset-backed securities are broker-dealer quotes and the Company is not able to determine if those quotes are based on observable market inputs, in which case the fair value is included in the Level 3 hierarchy.

Equity securities: Comprised of U.S. and foreign common and preferred stocks and mutual funds. Equities are generally included in the Level 1 fair value hierarchy as prices are obtained from market exchanges in active markets. Non-U.S. mutual funds where the net asset value (“NAV”) is not provided on a daily basis are included in the Level 3 fair value hierarchy. Also, the Company’s remaining equity interest in an equity security that it no longer accounts for under the equity method of accounting is included in the Level 3 fair value hierarchy as the fair value is based on the enterprise value of that security that is not a publicly traded company.

Other invested assets: Comprised of funds invested in a range of diversified strategies. In accordance with U.S. GAAP, the fair values of the funds are based on the NAV of the funds as reported by the fund manager. The Company does not measure its investments that are accounted for using the equity method of accounting at fair value, unless an other-than-temporary impairment is recorded.

Derivative instruments: The fair value of foreign exchange contracts, interest rate futures and swaps are priced from quoted market prices for similar exchange-traded derivatives and pricing valuation models that utilize independent market data inputs. The fair value of foreign exchange contracts, interest rate futures and swaps are included in the Level 2 fair value hierarchy. The fair value of the insurance and reinsurance contracts are based on an internal model that estimates the expected value based on multiple scenarios (i.e., Monte-Carlo simulation) and discounted back to current value. The key unobservable inputs are the discount rate, which was 10%, and the values of the underlying insured risks. Given the inputs to the internal model are unobservable, the fair value of the insurance and reinsurance contracts are included in the Level 3 fair value hierarchy.

15

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

Senior notes: The fair value of the senior notes is based on reported trades. The fair value of the senior notes is included in the Level 2 fair value hierarchy.

Other long-term debt: Comprised of the mortgage and credit facility associated with the purchase of office space in Switzerland. The fair value of the other long-term debt is based on the value of the debt using current interest rates. The fair value of the other long-term debt is included in the Level 2 fair value hierarchy.

Non-recurring Fair Value of Financial Instruments

The Company measures the fair value of certain assets on a non-recurring basis, generally quarterly, annually, or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. These assets include investments accounted for using the equity method, goodwill and intangible assets. The Company uses a variety of techniques to measure the fair value of these assets when appropriate, as described below:

Investments accounted for using the equity method: When the Company determines that the carrying value of these assets may not be recoverable, the Company records the assets at fair value with the loss recognized in income. In such cases, the Company measures the fair value of these assets using the techniques discussed above.

Goodwill and intangible assets: The Company tests goodwill and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, but at least annually for goodwill and indefinite-lived intangibles. When the Company determines that goodwill and indefinite-lived intangible assets may be impaired, the Company uses various techniques, including discounted expected future cash flows and market multiple models, to measure fair value.

Rollforward of Level 3 Financial Instruments

The following is a reconciliation of the beginning and ending balance of financial instruments using significant unobservable inputs (Level 3):

	Corporate Debt - Financial Institutions			Agency MBS			Non-agency RMBS			Asset-backed			Equities			Insurance Contracts			Reinsurance Contracts
Three Months Ended March 31, 2017
Opening balance	$	1.5		$	138.7		$	—		$	59.5		$	24.7		$	7.4		$	(4.0	)
Realized and unrealized gains (losses) included in net income	(0.1		)	(0.3		)	—			(0.2		)	(0.2		)	(0.9		)	0.6
Purchases	0.6			29.9			—			31.3			—			—			—
Sales	—			(17.0		)	—			(5.0		)	—			—			—
Transfers into Level 3 from Level 2	—			—			—			1.2			—			—			—
Transfers out of Level 3 into Level 2(1)	—			—			—			(36.8		)	—			—			—
Ending balance	$	2.0		$	151.3		$	—		$	50.0		$	24.5		$	6.5		$	(3.4	)
Three Months Ended March 31, 2016
Opening balance	$	—		$	101.1		$	5.0		$	63.0		$	—		$	—		$	—
Realized and unrealized gains (losses) included in net income	—			1.6			0.1			(0.8		)	—			—			—
Purchases	—			40.4			—			9.0			—			—			—
Sales	—			(3.6		)	(0.1		)	(2.1		)	—			—			—
Transfers into Level 3 from Level 2	—			1.6			—			9.9			—			—			—
Transfers out of Level 3 into Level 2(1)	—			—			—			(15.4		)	—			—			—
Ending balance	$	—		$	141.1		$	5.0		$	63.6		$	—		$	—		$	—

(1)Transfers out of Level 3 are primarily attributable to the availability of market observable information.

The Company attempts to verify the significant inputs used by broker-dealers in determining the fair value of the securities priced by them. If the Company could not obtain sufficient information to determine if the broker-dealers were using

16

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

significant observable inputs, such securities have been transferred to the Level 3 fair value hierarchy. The Company believes the prices obtained from the broker-dealers are the best estimate of fair value of the securities being priced, as the broker-dealers are typically involved in the initial pricing of the security, and the Company has compared the price per the broker-dealer to other pricing sources and noted no material differences. The Company recognizes transfers between levels at the end of the reporting period. There were no transfers between Level 1 and Level 2 during the period.

The Company’s external investment accounting service provider receives prices from internationally recognized independent pricing services to measure the fair values of its fixed maturity investments. Pricing sources are evaluated and selected in a manner to ensure that the most reliable sources are used. The independent pricing sources obtain market quotations and actual transaction prices for securities that have quoted prices in active markets. Each pricing service has its own proprietary method for determining the fair value of securities that are not actively traded. In general, these methods involve the use of “matrix pricing” in which the independent pricing service uses observable market inputs, including, but not limited to, reported trades, benchmark yields, broker-dealer quotes, interest rates, prepayment speeds, default rates and such other inputs as are available from market sources to determine a reasonable fair value.

All of the Company’s fixed maturity investment securities classified as Level 3 are valued based on unadjusted broker-dealer quotes. This includes less liquid securities such as lower quality asset-backed securities, commercial mortgage-backed securities and residential mortgage-backed securities. The primary valuation inputs include monthly payment information, the probability of default, loss severity rates and estimated prepayment rates. Significant changes in these inputs in isolation would result in a significantly lower or higher fair value measurement. In general, a change in the assumption of the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity in an event of default and prepayment rates.

The Company records the unadjusted price provided and validates this price through a process that includes, but is not limited to, monthly and/or quarterly: (i) comparison of prices between two independent sources, with significant differences requiring additional price sources; (ii) quantitative analysis (e.g., comparing the quarterly return for each managed portfolio to their target benchmark, with significant differences identified and investigated); (iii) evaluation of methodologies used by external parties to calculate fair value, including a review of the inputs used for pricing; (iv) comparing the price to the Company’s knowledge of the current investment market; and (v) back-testing, which includes randomly selecting purchased or sold securities and comparing the executed prices to the fair value estimates from the pricing service. In addition to internal controls, management relies on the effectiveness of the valuation controls in place at the Company’s external investment accounting service provider (supported by a Statement on Standards for Attestation Engagements No. 16 report) in conjunction with regular discussion and analysis of the investment portfolio’s structure and performance.

7. RESERVE FOR LOSSES AND LOSS EXPENSES

The reserve for losses and loss expenses consists of the following:

	March 31, 2017		December 31, 2016
Outstanding loss reserves	$	1,899.9	$	1,807.5
Reserves for losses incurred but not reported	4,862.8		4,831.7
Reserve for losses and loss expenses	$	6,762.7	$	6,639.2

17

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

The table below is a reconciliation of the beginning and ending liability for unpaid losses and loss expenses. Losses incurred and paid are reflected net of reinsurance recoverables.

	Three Months Ended March 31,
	2017			2016
Gross liability at beginning of period	$	6,639.2		$	6,456.2
Reinsurance recoverable at beginning of period	(1,625.0		)	(1,480.0		)
Net liability at beginning of period	5,014.2			4,976.2
Net losses incurred related to:
Current year	360.5			397.8
Prior years	(1.5		)	(25.4		)
Total incurred	359.0			372.4
Net paid losses related to:
Current year	6.5			6.7
Prior years	336.9			282.5
Total paid	343.4			289.2
Foreign exchange revaluation and other	7.3			3.7
Net liability at end of period	5,037.1			5,063.1
Reinsurance recoverable at end of period	1,725.6			1,512.0
Gross liability at end of period	$	6,762.7		$	6,575.1

For the three months ended March 31, 2017, the Company recorded net favorable prior year reserve development primarily due to lower than expected claims development in the Global Markets Insurance and Reinsurance segments, partially offset by unfavorable prior year reserve development in the North American Insurance segment. The unfavorable loss reserve development in the North American Insurance segment was primarily due to higher than expected reported losses in the casualty line of business for the 2012 and 2014 loss years, the professional liability line of business for the 2013 loss year, the property line of business for the 2015 and 2016 loss years, the healthcare line of business for the 2012 and 2013 loss years and the other specialty line of business for the 2013 and 2015 loss years.

For the three months ended March 31, 2016, the Company recorded net favorable prior year reserve development in each of its operating segments primarily due to actual loss emergence being lower than initially expected. The net favorable prior year reserve development in the North American Insurance segment was primarily related to the professional liability and programs lines of business, partially offset by net unfavorable prior year reserve development in the casualty line of business. The net favorable reserve development in the Global Markets Insurance segment was primarily related to the other specialty line of business partially offset by unfavorable reserve development in the professional liability and casualty lines of business. The net favorable prior year reserve development in the Reinsurance segment was primarily related to the property reinsurance and specialty reinsurance lines of business, partially offset by net unfavorable prior year reserve development in the casualty reinsurance line of business.

Although the Company has experienced favorable reserve development in its insurance and reinsurance lines, there is no assurance that conditions and trends that have affected the development of liabilities in the past will continue. It is not appropriate to extrapolate future redundancies based on prior years’ development. The methodology of estimating loss reserves is periodically reviewed to ensure that the key assumptions used in the actuarial models continue to be appropriate.

8. INCOME TAXES

Under Swiss law, a resident company is subject to income tax at the federal, cantonal and communal levels that is levied on net income. Income attributable to permanent establishments or real estate located abroad is excluded from the Swiss tax base. Allied World Switzerland is a holding company and, therefore, is exempt from cantonal and communal income tax. As a result, Allied World Switzerland is subject to Swiss income tax only at the federal level. Allied World Switzerland is a resident of the Canton of Zug and, as such, is subject to an annual cantonal and communal capital tax on its taxable equity. Allied World

18

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

Switzerland has a Swiss operating company resident in the Canton of Zug. The operating company is subject to federal, cantonal and communal income tax and to annual cantonal and communal capital tax.

Under current Bermuda law, Allied World Assurance Company Holdings, Ltd (“Allied World Bermuda”) and its Bermuda subsidiaries are not required to pay taxes in Bermuda on either income or capital gains. Allied World Bermuda and Allied World Assurance Company, Ltd have received an assurance from the Bermuda Minister of Finance under the Exempted Undertakings Tax Protection Act 1966 of Bermuda, that in the event of any such taxes being imposed, Allied World Bermuda and Allied World Assurance Company, Ltd will be exempted until March 2035.

Certain subsidiaries of Allied World Switzerland file U.S. federal income tax returns and various U.S. state income tax returns, as well as income tax returns in Canada, Hong Kong, Ireland, Singapore and the United Kingdom. The U.S. Internal Revenue Service (the “IRS”) is currently conducting an audit of the 2014 tax return of the U.S. services company. The audit is ongoing and the Company is not aware of any findings from the audit thus far. To the best of the Company’s knowledge, there are no other income tax examinations pending by any other tax authority.

Management has deemed all material tax positions to have a greater than 50% likelihood of being sustained based on technical merits if challenged. The Company does not expect any material unrecognized tax benefits within 12 months of March 31, 2017.

The Company recorded an income tax benefit of $1.8 million during the three months ended March 31, 2017 related to excess tax benefits due to the adoption of Accounting Standards Update 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”), which became effective January 1, 2017. ASU 2016-09 requires excess tax benefits related to stock compensation to be recorded as an income tax benefit instead of as an increase to additional paid-in capital.

9. SHAREHOLDERS’ EQUITY

a) Authorized shares

The issued share capital consists of the following:

	March 31, 2017		December 31, 2016
Common shares issued and fully paid, 2017 and 2016: CHF 4.10 per share	93,586,418		93,586,418
Share capital at end of period	$	378.8	$	378.8
			Three Months Ended March 31, 2017
Shares issued at beginning of period			93,586,418
Shares canceled			—
Total shares issued at end of period			93,586,418
Treasury shares issued at beginning of period			6,488,298
Shares repurchased			—
Shares issued out of treasury			(385,595		)
Shares canceled			—
Total treasury shares at end of period			6,102,703
Total shares outstanding at end of period			87,483,715

During the three months ended March 31, 2017, no shares repurchased and designated for cancellation were constructively retired and canceled.

19

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

b) Dividends

On April 19, 2016, the shareholders approved the Company’s proposal to pay cash dividends in the form of a distribution out of the general legal reserve from capital contributions. The distribution amounts are paid to shareholders in quarterly installments of $0.26 per share. The first three installments of the dividend were paid to shareholders on June 30, 2016, September 29, 2016 and December 29, 2016. In connection with the announced transaction with Fairfax, at a special meeting of the Company’s shareholders held on March 22, 2017, the Company’s shareholders approved the payment of a special cash dividend of $5.00 per common share, or approximately $437.0 million based on the common shares outstanding as of March 31, 2017, and agreed to forego the fourth installment of the previously approved $0.26 quarterly dividend. The special dividend is conditioned upon, and will be payable shortly after, the consummation of the exchange offer contemplated by the Fairfax transaction.

c) Share Repurchases

On April 19, 2016, the shareholders approved a share repurchase program (the “2016 share repurchase program”) in order for the Company to repurchase up to $500.0 million of its common shares. The 2016 share repurchase program supersedes the 2014 share repurchase program and no further repurchases will be made under the 2014 share repurchase program. Repurchases may be effected from time to time through open market purchases, privately negotiated transactions, tender offers or otherwise. The timing, form and amount of the share repurchases under the 2016 share repurchase program will depend on a variety of factors, including market conditions, the Company’s capital position, legal requirements and other factors. Under the terms of this share repurchase program, the first three million of common shares repurchased will remain in treasury and will be used by the Company to satisfy share delivery obligations under its equity-based compensation plans. Any additional common shares repurchased will be designated for cancellation at acquisition and will be canceled upon shareholder approval. Shares repurchased and designated for cancellation are constructively retired and recorded as a share cancellation. The Company does not anticipate repurchasing any of its common shares pending the completion of the Fairfax transaction.

10. EARNINGS PER SHARE

The following table sets forth the comparison of basic and diluted earnings per share:

	Three Months Ended March 31,
	2017		2016
Basic earnings per share:
Net income	$	80.3	$	74.1
Weighted average common shares outstanding	87,291,369		90,254,512
Basic earnings per share	$	0.92	$	0.82

	Three Months Ended March 31,
	2017		2016
Diluted earnings per share:
Net income	$	80.3	$	74.1
Weighted average common shares outstanding	87,291,369		90,254,512
Share equivalents:
Stock options	987,726		832,747
RSUs and performance-based equity awards	854,117		451,268
Employee share purchase plan	—		20,698
Weighted average common shares and common share equivalents outstanding - diluted	89,133,212		91,559,225
Diluted earnings per share	$	0.90	$	0.81

For the three months ended March 31, 2017 and 2016, a weighted average of nil and 353,679 RSUs, respectively, were considered anti-dilutive and were therefore excluded from the calculation of diluted earnings per share.

20

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

11. SEGMENT INFORMATION

The determination of reportable segments is based on how senior management monitors the Company’s underwriting operations. Management monitors the performance of its direct underwriting operations based on the geographic location of the Company’s offices, the markets and customers served and the type of accounts written. The Company is currently organized into three operating segments: North American Insurance, Global Markets Insurance and Reinsurance. All lines of business fall within these classifications.

The North American Insurance segment includes the Company’s specialty insurance operations in the United States, Bermuda and Canada, as well as the Company’s claims administration services operation. This segment provides both property and specialty casualty insurance primarily to North American domiciled accounts. The Global Markets Insurance segment includes the Company’s specialty insurance operations in Europe and Asia Pacific, which includes offices in Dublin, Hong Kong, Labuan, London, Singapore, Sydney, and Zug, as well as the Company’s insurance agency operation. This segment provides both property and casualty insurance primarily to non-North American domiciled accounts. The Reinsurance segment includes the Company’s reinsurance operations in Bermuda, London, Miami, New York, Singapore, and Zug. This segment provides reinsurance of property, general casualty, professional liability, specialty lines and property catastrophe coverages written by insurance companies. The Company presently writes reinsurance on both a treaty and a facultative basis, targeting several niche reinsurance markets.

Responsibility and accountability for the results of underwriting operations are assigned by major line of business within each segment. Because the Company does not manage its assets by segment, investment income, interest expense and total assets are not allocated to individual reportable segments. General and administrative expenses are allocated to segments based on various factors, including expenses directly attributable to individual segments, staff count and each segment’s proportional share of gross premiums written.

The Company measures its segment profit or loss as underwriting income or loss plus other insurance-related income and expenses, which may include the net earnings from our claims administration services operations and other income or expense that is not directly related to our underwriting operations. Management measures results for each segment’s underwriting income or loss on the basis of the “loss and loss expense ratio,” “acquisition cost ratio,” “general and administrative expense ratio,” “expense ratio” and “combined ratio.” The “loss and loss expense ratio” is derived by dividing net losses and loss expenses by net premiums earned. The “acquisition cost ratio” is derived by dividing acquisition costs by net premiums earned. The “general and administrative expense ratio” is derived by dividing general and administrative expenses by net premiums earned. The expense ratio is the sum of the “acquisition cost ratio” and the “general and administrative expense ratio”. The “combined ratio” is the sum of the “loss and loss expense ratio,” the “acquisition cost ratio” and the “general and administrative expense ratio.”

21

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

The following tables provide a summary of the segment results:

Three Months Ended March 31, 2017	North American Insurance			Global Markets Insurance			Reinsurance			Total
Gross premiums written	$	396.8		$	115.8		$	348.3		$	860.9
Net premiums written	253.9			89.6			332.6			676.1
Net premiums earned	295.0			92.7			157.2			544.9
Net losses and loss expenses	(218.2		)	(55.2		)	(85.6		)	(359.0		)
Acquisition costs	(25.4		)	(16.2		)	(35.5		)	(77.1		)
General and administrative expenses	(59.0		)	(28.2		)	(16.9		)	(104.1		)
Underwriting (loss) income	(7.6		)	(6.9		)	19.2			4.7
Other insurance-related income	0.5			0.8			—			1.3
Other insurance-related expenses	(1.4		)	(0.4		)	(0.5		)	(2.3		)
Segment (loss) income	(8.5		)	(6.5		)	18.7			3.7
Net investment income										52.3
Net realized investment gains										40.7
Amortization of intangible assets										(2.3		)
Other expenses										(4.8		)
Interest expense										(10.4		)
Foreign exchange loss										(1.4		)
Income before income taxes										$	77.8
Loss and loss expense ratio	74.0		%	59.5		%	54.5		%	65.9		%
Acquisition cost ratio	8.6		%	17.5		%	22.6		%	14.1		%
General and administrative expense ratio	20.0		%	30.4		%	10.7		%	19.1		%
Expense ratio	28.6		%	47.9		%	33.3		%	33.2		%
Combined ratio	102.6		%	107.4		%	87.8		%	99.1		%

22

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

Three Months Ended March 31, 2016	North American Insurance			Global Markets Insurance			Reinsurance			Total
Gross premiums written	$	379.2		$	115.5		$	368.8		$	863.5
Net premiums written	266.2			87.6			350.2			704.0
Net premiums earned	316.3			94.2			169.6			580.1
Net losses and loss expenses	(216.3		)	(67.8		)	(88.3		)	(372.4		)
Acquisition costs	(33.9		)	(17.9		)	(36.5		)	(88.3		)
General and administrative expenses	(52.2		)	(29.0		)	(15.2		)	(96.4		)
Underwriting income (loss)	13.9			(20.5		)	29.6			23.0
Other insurance-related income	0.6			—			—			0.6
Other insurance-related expenses	(0.7		)	—			(0.4		)	(1.1		)
Segment income (loss)	13.8			(20.5		)	29.2			22.5
Net investment income										53.3
Net realized investment gains										18.9
Amortization of intangible assets										(2.5		)
Interest expense										(20.0		)
Foreign exchange gain										3.0
Income before income taxes										$	75.2
Loss and loss expense ratio	68.4		%	72.0		%	52.1		%	64.2		%
Acquisition cost ratio	10.7		%	19.0		%	21.5		%	15.2		%
General and administrative expense ratio	16.5		%	30.8		%	8.9		%	16.6		%
Expense ratio	27.2		%	49.8		%	30.4		%	31.8		%
Combined ratio	95.6		%	121.8		%	82.5		%	96.0		%

The following table shows an analysis of the Company’s gross premiums written by geographic location of the Company’s subsidiaries and branches. All intercompany premiums have been eliminated.

	Three Months Ended March 31,
	2017		2016
United States	$	537.2	$	524.0
Bermuda	142.6		144.2
Europe	94.0		88.9
Asia Pacific	82.5		102.2
Canada	4.6		4.2
Total gross premiums written	$	860.9	$	863.5

Europe includes gross premiums written attributable to Switzerland of $35.1 million and $35.6 million for the three months ended March 31, 2017 and 2016, respectively.

23

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

The following table shows the Company’s net premiums earned by line of business for each segment for the three months ended March 31, 2017 and 2016, respectively.

	Three Months Ended March 31,
	2017		2016
North American Insurance:
Casualty	$	92.1	$	96.7
Professional liability	81.6		101.5
Programs	47.6		39.6
Other specialty	32.6		25.2
Property	27.3		33.8
Healthcare	13.8		19.5
Total	295.0		316.3
Global Markets Insurance:
Other specialty	30.9		30.8
Professional liability	23.0		23.5
Casualty	21.3		23.6
Property	17.5		16.3
Total	92.7		94.2
Reinsurance:
Property	76.6		84.4
Casualty	44.2		46.2
Specialty	36.4		39.0
Total	157.2		169.6
Total net premiums earned	$	544.9	$	580.1

12. COMMITMENTS AND CONTINGENCIES

The Company, in common with the insurance industry in general, is subject to litigation and arbitration in the normal course of its business. These legal proceedings generally relate to claims asserted by or against the Company in the ordinary course of insurance or reinsurance operations. Estimated amounts payable under these proceedings are included in the reserve for losses and loss expenses in the Company’s consolidated balance sheets. As of March 31, 2017, the Company was not a party to any material legal proceedings arising outside the ordinary course of business that management believes will have a material adverse effect on the Company’s results of operations, financial position or cash flow.

24

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

13. CONDENSED CONSOLIDATED GUARANTOR FINANCIAL STATEMENTS

The following tables present unaudited condensed consolidating financial information as of March 31, 2017 and December 31, 2016 and for the three months ended March 31, 2017 and 2016 for Allied World Switzerland (the “Parent Guarantor”) and Allied World Bermuda (the “Subsidiary Issuer”). The Subsidiary Issuer is a direct, 100%-owned subsidiary of the Parent Guarantor. Investments in subsidiaries are accounted for by the Parent Guarantor under the equity method for purposes of the supplemental consolidating presentation. Earnings of subsidiaries are reflected in the Parent Guarantor’s investment accounts and earnings. The Parent Guarantor fully and unconditionally guarantees the senior notes issued by the Subsidiary Issuer.

Unaudited Condensed Consolidating Balance Sheet:

As of March 31, 2017	Allied World Switzerland (Parent Guarantor)		Allied World Bermuda (Subsidiary Issuer)		Other Allied World Subsidiaries		Consolidating Adjustments			Allied World Switzerland Consolidated
ASSETS:
Investments	$	—	$	—	$	7,694.9	$	—		$	7,694.9
Cash and cash equivalents	14.8		25.8		1,244.3		—			1,284.9
Insurance balances receivable	—		—		862.2		—			862.2
Funds held	—		—		297.1		—			297.1
Reinsurance recoverable	—		—		1,725.6		—			1,725.6
Reinsurance recoverable on paid losses	—		—		119.9		—			119.9
Net deferred acquisition costs	—		—		148.9		—			148.9
Goodwill and intangible assets	—		—		492.8		—			492.8
Balances receivable on sale of investments	—		—		23.9		—			23.9
Investments in subsidiaries	3,068.0		3,608.3		—		(6,676.3		)	—
Due from subsidiaries	567.4		22.9		17.0		(607.3		)	—
Other assets	1.1		0.8		775.4		—			777.3
Total assets	$	3,651.3	$	3,657.8	$	13,402.0	$	(7,283.6	)	$	13,427.5
LIABILITIES:
Reserve for losses and loss expenses	$	—	$	—	$	6,762.7	$	—		$	6,762.7
Unearned premiums	—		—		1,813.2		—			1,813.2
Reinsurance balances payable	—		—		202.9		—			202.9
Balances due on purchases of investments	—		—		58.2		—			58.2
Senior notes	—		794.4		—		—			794.4
Other long-term debt	—		—		22.6		—			22.6
Due to subsidiaries	9.4		7.6		590.3		(607.3		)	—
Other liabilities	3.6		15.3		116.3		—			135.2
Total liabilities	13.0		817.3		9,566.2		(607.3		)	9,789.2
Total shareholders’ equity	3,638.3		2,840.5		3,835.8		(6,676.3		)	3,638.3
Total liabilities and shareholders’ equity	$	3,651.3	$	3,657.8	$	13,402.0	$	(7,283.6	)	$	13,427.5

25

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

As of December 31, 2016	Allied World Switzerland (Parent Guarantor)		Allied World Bermuda (Subsidiary Issuer)		Other Allied World Subsidiaries		Consolidating Adjustments			Allied World Switzerland Consolidated
ASSETS:
Investments	$	—	$	—	$	7,942.3	$	—		$	7,942.3
Cash and cash equivalents	13.1		0.8		707.0		—			720.9
Insurance balances receivable	—		—		784.0		—			784.0
Funds held	—		—		466.8		—			466.8
Reinsurance recoverable	—		—		1,625.0		—			1,625.0
Reinsurance recoverable on paid losses	—		—		104.4		—			104.4
Net deferred acquisition costs	—		—		121.1		—			121.1
Goodwill and intangible assets	—		—		494.4		—			494.4
Balances receivable on sale of investments	—		—		114.7		—			114.7
Investments in subsidiaries	3,433.7		4,020.1		—		(7,453.8		)	—
Due from subsidiaries	115.6		—		29.9		(145.5		)	—
Other assets	1.8		0.8		802.8		—			805.4
Total assets	$	3,564.2	$	4,021.7	$	13,192.4	$	(7,599.3	)	$	13,179.0
LIABILITIES:
Reserve for losses and loss expenses	$	—	$	—	$	6,639.2	$	—		$	6,639.2
Unearned premiums	—		—		1,688.1		—			1,688.1
Reinsurance balances payable	—		—		223.3		—			223.3
Balances due on purchases of investments	—		—		79.7		—			79.7
Senior notes	—		794.2		—		—			794.2
Other long-term debt	—		—		22.0		—			22.0
Due to subsidiaries	10.0		20.0		115.6		(145.6		)	—
Other liabilities	2.4		5.7		172.6		—			180.7
Total liabilities	12.4		819.9		8,940.5		(145.6		)	9,627.2
Total shareholders’ equity	3,551.8		3,201.8		4,251.9		(7,453.7		)	3,551.8
Total liabilities and shareholders’ equity	$	3,564.2	$	4,021.7	$	13,192.4	$	(7,599.3	)	$	13,179.0

26

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

Unaudited Condensed Consolidating Statement of Operations and Comprehensive Income:

Three Months Ended March 31, 2017	Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
Net premiums earned	$	—		$	—		$	544.9		$	—		$	544.9
Net investment income	—			—			52.3			—			52.3
Net realized investment gains	—			—			40.7			—			40.7
Other income	—			—			1.3			—			1.3
Net losses and loss expenses	—			—			(359.0		)	—			(359.0		)
Acquisition costs	—			—			(77.1		)	—			(77.1		)
General and administrative expenses	(9.1		)	(0.3		)	(94.7		)	—			(104.1		)
Other expense	(0.9		)	(0.1		)	(6.1		)	—			(7.1		)
Amortization of intangible assets	—			—			(2.3		)	—			(2.3		)
Interest expense	—			(9.8		)	(0.6		)	—			(10.4		)
Foreign exchange gain (loss)	—			—			(1.4		)	—			(1.4		)
Income tax (expense) benefit	(0.9		)	—			3.4			—			2.5
Equity in earnings of consolidated subsidiaries	91.2			106.5			—			(197.7		)	—
NET INCOME (LOSS)	$	80.3		$	96.3		$	101.4		$	(197.7	)	$	80.3
Other comprehensive income (loss)	5.7			—			5.7			(5.7		)	5.7
COMPREHENSIVE INCOME (LOSS)	$	86.0		$	96.3		$	107.1		$	(203.4	)	$	86.0

Three Months Ended March 31, 2016	Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
Net premiums earned	$	—		$	—		$	580.1		$	—		$	580.1
Net investment income	—			—			53.3			—			53.3
Net realized investment gains	—			—			18.9			—			18.9
Other income	—			—			0.6			—			0.6
Net losses and loss expenses	—			—			(372.4		)	—			(372.4		)
Acquisition costs	—			—			(88.3		)	—			(88.3		)
General and administrative expenses	0.6			0.5			(97.5		)	—			(96.4		)
Other expense	—			—			(1.1		)	—			(1.1		)
Amortization of intangible assets	—			—			(2.5		)	—			(2.5		)
Interest expense	—			(19.4		)	(0.6		)	—			(20.0		)
Foreign exchange gain (loss)	—			—			3.0			—			3.0
Income tax (expense) benefit	(0.3		)	—			(0.8		)	—			(1.1		)
Equity in earnings of consolidated subsidiaries	73.8			95.9			—			(169.7		)	—
NET INCOME (LOSS)	$	74.1		$	77.0		$	92.7		$	(169.7	)	$	74.1
Other comprehensive income (loss)	3.1			—			3.1			(3.1		)	3.1
COMPREHENSIVE INCOME (LOSS)	$	77.2		$	77.0		$	95.8		$	(172.8	)	$	77.2

27

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

Unaudited Condensed Consolidating Statement of Cash Flows:

Three Months Ended March 31, 2017	Allied World Switzerland (Parent Guarantor)		Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:	$	0.3	$	35.0		$	181.3		$	(20.0	)	$	196.6
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of trading securities	—		—			(779.8		)	—			(779.8		)
Purchases of other invested assets	—		—			(11.4		)	—			(11.4		)
Sales of trading securities	—		—			1,141.9			—			1,141.9
Sales of other invested assets	—		—			0.5			—			0.5
Other	—		—			14.9			—			14.9
Net cash provided by (used in) investing activities	—		—			366.1			—			366.1
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Dividends paid	—		—			—			—			—
Intercompany dividends paid	—		(10.0		)	(10.0		)	20.0			—
Proceeds from the exercise of stock options	1.4		—			—			—			1.4
Repayment of other long-term debt	—		—			(0.1		)	—			(0.1		)
Net cash provided by (used in) financing activities	1.4		(10.0		)	(10.1		)	20.0			1.3
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	1.7		25.0			537.3			—			564.0
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	13.1		0.8			707.0			—			720.9
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	14.8	$	25.8		$	1,244.3		$	—		$	1,284.9

28

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in millions, except share, per share, percentage and ratio information)

Three Months Ended March 31, 2016	Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:	$	69.7		$	78.9		$	377.4		$	(176.7	)	$	349.3
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of trading securities	—			—			(1,530.0		)	—			(1,530.0		)
Purchases of other invested assets	—			—			(8.1		)	—			(8.1		)
Sales of trading securities	—			—			1,414.6			—			1,414.6
Sales of other invested assets	—			—			38.7			—			38.7
Other	—			—			(27.4		)	—			(27.4		)
Net cash provided by (used in) investing activities	—			—			(112.2		)	—			(112.2		)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Dividends paid	(23.4		)	—			—			—			(23.4		)
Intercompany dividends paid	—			(78.5		)	(98.2		)	176.7			—
Proceeds from the exercise of stock options	0.4			—			—			—			0.4
Repayment of other long-term debt	—			—			(0.1		)	—			(0.1		)
Share repurchases	(50.0		)	—			—			—			(50.0		)
Net cash provided by (used in) financing activities	(73.0		)	(78.5		)	(98.3		)	176.7			(73.1		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(3.3		)	0.4			166.9			—			164.0
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	21.8			1.0			585.2			—			608.0
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	18.5		$	1.4		$	752.1		$	—		$	772.0

Notes to Parent Guarantor Condensed Financial Information

a) Dividends

Allied World Switzerland received cash dividends from its subsidiaries of $10.0 million and $78.5 million for the three months ended March 31, 2017 and 2016, respectively. Such dividends are included in “cash flows provided by (used in) operating activities” in the unaudited condensed consolidating cash flows.

29

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

	Page No.
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2016 and 2015	F-3
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2016, 2015 and 2014	F-4
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2016, 2015 and 2014	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014	F-6
Notes to Consolidated Financial Statements	F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Allied World Assurance Company Holdings, AG

Zug, Switzerland

We have audited the accompanying consolidated balance sheets of Allied World Assurance Company Holdings, AG and subsidiaries (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Allied World Assurance Company Holdings, AG and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

New York, New York

United States of America

February 28, 2017

F-2

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED BALANCE SHEETS

as of December 31, 2016 and 2015

(Expressed in millions of United States dollars, except share and per share amounts)

	As of December 31, 2016			As of December 31, 2015
ASSETS:
Fixed maturity investments trading, at fair value (amortized cost: 2016: $6,847.4; 2015: $7,290.6)	$	6,737.7		$	7,201.5
Equity securities trading, at fair value (cost: 2016: $235.0; 2015: $395.3)	243.9			403.0
Other invested assets	960.7			966.7
Total investments	7,942.3			8,571.2
Cash and cash equivalents	720.9			608.0
Restricted cash	76.5			60.6
Insurance balances receivable	784.0			745.9
Funds held	466.8			640.8
Prepaid reinsurance	486.4			392.3
Reinsurance recoverable	1,625.0			1,480.0
Reinsurance recoverable on paid losses	104.4			96.4
Accrued investment income	36.0			38.3
Net deferred acquisition costs	121.1			165.2
Goodwill	389.7			388.1
Intangible assets	104.7			116.6
Balances receivable on sale of investments	114.7			36.9
Net deferred tax assets	38.7			24.4
Other assets	167.8			147.2
Total assets	$	13,179.0		$	13,511.9
LIABILITIES:
Reserve for losses and loss expenses	6,639.2			6,456.2
Unearned premiums	1,688.1			1,683.3
Reinsurance balances payable	223.3			214.4
Balances due on purchases of investments	79.7			125.1
Senior notes:
Principal amount	800.0			1,300.0
Less unamortized discount and debt issuance costs	5.8			7.1
Senior notes, net of unamortized discount and debt issuance costs	794.2			1,292.9
Other long-term debt	22.0			23.0
Accounts payable and accrued liabilities	180.7			184.5
Total liabilities	$	9,627.2		$	9,979.4
SHAREHOLDERS’ EQUITY:
Common shares: 2016 and 2015: par value CHF 4.10 per share (2016: 93,586,418; 2015: 95,523,230 shares issued and 2016: 87,098,120; 2015: 90,959,635 shares outstanding)	378.8			386.7
Treasury shares, at cost (2016: 6,488,298; 2015: 4,563,595)	(233.8		)	(155.1		)
Accumulated other comprehensive loss	(11.6		)	(9.3		)
Retained earnings	3,418.4			3,310.2
Total shareholders’ equity	$	3,551.8		$	3,532.5
Total liabilities and shareholders’ equity	$	13,179.0		$	13,511.9

See accompanying notes to the consolidated financial statements.

F-3

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

for the years ended December 31, 2016, 2015 and 2014

(Expressed in millions of United States dollars, except share and per share amounts)

	2016			2015			2014
REVENUES:
Gross premiums written	$	3,065.8		$	3,093.0		$	2,935.4
Premiums ceded	(810.0		)	(645.0		)	(613.4		)
Net premiums written	2,255.8			2,448.0			2,322.0
Change in unearned premiums	88.3			40.4			(139.3		)
Net premiums earned	2,344.1			2,488.4			2,182.7
Net investment income	217.8			182.1			176.9
Net realized investment gains (losses)	2.1			(127.6		)	89.0
Other income	12.4			3.5			2.1
Total revenue	2,576.4			2,546.4			2,450.7
EXPENSES:
Net losses and loss expenses	1,501.8			1,586.3			1,199.2
Acquisition costs	339.8			375.4			295.1
General and administrative expenses	411.5			406.3			365.7
Other expense	6.8			6.2			8.6
Amortization and impairment of intangible assets	10.7			9.8			2.5
Interest expense	63.7			61.4			57.8
Foreign exchange (gain) loss	(4.1		)	11.3			1.0
Total expenses	2,330.2			2,456.7			1,929.9
Income before income taxes	246.2			89.7			520.8
Income tax (benefit) expense	(9.1		)	5.8			30.5
NET INCOME	255.3			83.9			490.3
Other comprehensive loss: foreign currency translation adjustment	(2.3		)	(9.3		)	—
COMPREHENSIVE INCOME	$	253.0		$	74.6		$	490.3
PER SHARE DATA
Basic earnings per share	$	2.89		$	0.91		$	5.03
Diluted earnings per share	$	2.84		$	0.89		$	4.92
Weighted average common shares outstanding	88,275,810			92,530,208			97,538,319
Weighted average common shares and common share equivalents outstanding	89,800,894			94,174,460			99,591,773
Dividends paid per share	$	1.040		$	1.230		$	0.784

See accompanying notes to the consolidated financial statements.

F-4

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

for the years ended December 31, 2016, 2015 and 2014

(Expressed in millions of United States dollars)

	2016			2015			2014
Share capital
Balance at the beginning of the year	$	386.7		$	408.0		$	419.0
Shares canceled	(7.9		)	(21.3		)	(11.0		)
Balance at the end of the year	378.8			386.7			408.0
Treasury shares
Balance at the beginning of the year	(155.1		)	(143.1		)	(80.0		)
Stock compensation(1)	20.9			19.6			19.6
Shares repurchased	(166.3		)	(245.3		)	(175.4		)
Shares canceled	66.7			213.7			92.7
Balance at the end of the year	(233.8		)	(155.1		)	(143.1		)
Accumulated other comprehensive loss
Balance at the beginning of the year	(9.3		)	—			—
Foreign currency translation adjustment	(2.3		)	(9.3		)	—
Balance at the end of the year	(11.6		)	(9.3		)	—
Retained earnings
Balance at the beginning of the year	3,310.2			3,513.3			3,180.8
Net income	255.3			83.9			490.3
Dividends	(91.5		)	(92.4		)	(81.7		)
Stock compensation	3.2			(2.2		)	5.6
Shares canceled	(58.8		)	(192.4		)	(81.7		)
Balance at the end of the year	3,418.4			3,310.2			3,513.3
Total shareholders’ equity	$	3,551.8		$	3,532.5		$	3,778.2

(1) Includes stock compensation expense for the period and shares issued out of treasury for awards exercised or vested. See note 2(o) to the notes to the consolidated financial statements.

See accompanying notes to the consolidated financial statements.

F-5

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED STATEMENTS OF CASH FLOWS

for the years ended December 31, 2016, 2015 and 2014

(Expressed in millions of United States dollars)

	2016			2015			2014
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income	$	255.3		$	83.9		$	490.3
Adjustments to reconcile net income to cash provided by operating activities:
Net realized gains on sales of investments	(38.1		)	(73.9		)	(145.0		)
Mark-to-market adjustments	12.7			189.8			22.0
Stock compensation expense	16.4			15.8			14.2
Distributed and undistributed income of equity method investments	30.6			22.6			13.9
Changes in:
Reserve for losses and loss expenses, net of reinsurance recoverables	38.1			175.9			8.9
Unearned premiums, net of prepaid reinsurance	(89.2		)	(43.9		)	139.3
Insurance balances receivable	(39.4		)	37.0			(76.8		)
Reinsurance recoverable on paid losses	(7.9		)	(10.4		)	(8.5		)
Funds held	174.0			83.2			(91.6		)
Reinsurance balances payable	9.0			(5.6		)	7.0
Net deferred acquisition costs	44.1			17.0			(24.9		)
Net deferred tax assets	(14.3		)	(2.7		)	4.2
Accounts payable and accrued liabilities	(4.9		)	(10.1		)	8.0
Other items, net	12.9			34.2			55.9
Net cash provided by operating activities	399.3			512.8			416.9
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of trading securities	(5,423.7		)	(5,863.2		)	(7,630.0		)
Purchases of other invested assets	(119.0		)	(126.7		)	(307.9		)
Sales of trading securities	5,929.9			5,328.8			7,536.9
Sales of other invested assets	96.3			161.3			267.9
Purchases of fixed assets	(3.5		)	(31.8		)	(59.7		)
Net cash paid for acquisitions	(1.2		)	(124.4		)	(2.6		)
Change in restricted cash	(15.9		)	20.3			68.4
Net cash provided by (used in) investing activities	462.9			(635.7		)	(127.0		)
CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:
Dividends paid	(91.5		)	(114.1		)	(76.7		)
Share repurchases	(166.3		)	(246.4		)	(175.9		)
Repayment of senior notes	(500.0		)	—			—
Proceeds from the exercise of stock options	10.3			10.1			10.0
Proceeds from senior notes	—			496.7			—
Proceeds from other long-term debt	—			4.0			19.2
Repayment of other long-term debt	(0.3		)	(0.2		)	—
Net cash (used in) provided by used in financing activities	(747.8		)	150.1			(223.4		)
Effect of exchange rate changes on foreign currency cash	(1.5		)	(8.5		)	(9.1		)
NET INCREASE IN CASH AND CASH EQUIVALENTS	112.9			18.7			57.4
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	608.0			589.3			531.9
CASH AND CASH EQUIVALENTS, END OF YEAR	$	720.9		$	608.0		$	589.3
Supplemental disclosure of cash flow information:
— Cash paid for income taxes	$	3.5		$	2.5		$	18.4
— Cash paid for interest expense	$	75.8		$	54.0		$	54.0

See accompanying notes to the consolidated financial statements.

F-6

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

1.GENERAL

Allied World Assurance Company Holdings, AG, a Swiss holding company (“Allied World Switzerland”), through its wholly-owned subsidiaries (collectively, the “Company”), provides property and casualty insurance and reinsurance on a worldwide basis. References to “$” are to the lawful currency of the United States and to “CHF” are to the lawful currency of Switzerland.

On December 18, 2016, the Company entered into a merger agreement with Fairfax Financial Holdings Limited (“Fairfax”), whereby Fairfax will acquire all of the outstanding ordinary shares of Allied World Switzerland. Under the terms of the merger agreement, Allied World Switzerland shareholders will receive a combination of Fairfax subordinate voting shares and cash having a value equal to $54.00 per Allied World Switzerland share (based on the closing price of Fairfax’s subordinate voting shares on December 16, 2016). The merger agreement has been unanimously approved by both companies’ Board of Directors. The acquisition is expected to be consummated following the satisfaction of customary closing conditions. The acquisition is anticipated to close in the second quarter of 2017. There can be no assurances that the acquisition will occur.

2.SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates reflected in the Company’s financial statements include, but are not limited to:

·The premium estimates for certain reinsurance agreements,

·Recoverability of deferred acquisition costs,

·The reserve for outstanding losses and loss expenses,

·Valuation of ceded reinsurance recoverables,

·Determination of impairment of goodwill and other intangible assets, and

·Valuation of financial instruments.

Intercompany accounts and transactions have been eliminated on consolidation and all entities meeting consolidation requirements have been included in the consolidated financial statements. To facilitate comparison of information across periods, certain reclassifications have been made to prior year amounts to conform to the current year’s presentation.

The significant accounting policies are as follows:

a)Premiums and Acquisition Costs

Premiums are recorded as written on the inception date of the policy. For certain types of business written by the Company, notably assumed reinsurance, the exact premium income may not be known at the policy inception date. In the case of quota share reinsurance treaties assumed by the Company, the underwriter makes an estimate of premium income at inception. The underwriter’s estimate is based on statistical data provided by reinsureds and the underwriter’s judgment and experience. Such estimations are refined over the reporting period of each treaty as actual written premium information is reported by ceding companies and intermediaries. Premiums resulting from changes in the estimate of the premium income are recorded in the period the estimate is changed. Certain insurance and reinsurance contracts may require that the premium be adjusted at the expiry of the contract to reflect the change in exposure or loss experience of the insured or reinsured.

Premiums are recognized as earned over the period of policy coverage in proportion to the risks to which they relate. Reinsurance premiums under a losses-occurring reinsurance contract are earned over the coverage period. Reinsurance premiums under a risks-attaching reinsurance contract are earned over the same period as the underlying policies, or risks, covered by the contract. As a result, the earning pattern of a risks-attaching reinsurance contract may extend up to 24 months, reflecting the inception dates of the underlying policies. Premiums relating to the unexpired periods of coverage are recorded on the consolidated balance sheets as “unearned premiums”.

F-7

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Acquisition costs, comprised of commissions, brokerage fees and insurance taxes, are costs that are directly related to the successful acquisition of new and renewal business and are deferred. Although permitted under U.S. GAAP to defer certain internal costs that are directly related to the successful acquisition of new and renewal business, the Company does not defer such costs. Acquisition costs that are deferred, and carried on the balance sheets as an asset, are expensed as the premiums to which they relate are earned. Expected losses and loss expenses, other costs and anticipated investment income related to these unearned premiums are considered in determining the recoverability or deficiency of deferred acquisition costs. If it is determined that deferred acquisition costs are not recoverable, they are expensed. Further analysis is performed to determine if a liability is required to provide for losses which may exceed the related unearned premiums.

Acquisition costs recorded in the consolidated statements of operations and comprehensive income (“consolidated income statements”) includes other acquisition-related costs such as profit commissions that are expensed as incurred and the amortization of insurance-related intangible assets.

b)Reserve for Losses and Loss Expenses

The reserve for losses and loss expenses is comprised of two main elements: outstanding loss reserves (“OSLR,” also known as case reserves) and reserves for losses incurred but not reported (“IBNR”). OSLR relate to known claims and represent management’s best estimate of the likely loss payment. Reserves for IBNR relates to reserves established by the Company for claims that have occurred but have not yet been reported to us as well as for changes in the values of claims that have been reported to us but are not yet settled. See note 7 for additional information.

c)Ceded Reinsurance

In the ordinary course of business, the Company uses both treaty and facultative reinsurance to minimize its net loss exposure to any one catastrophic loss event or to an accumulation of losses from a number of smaller events. Reinsurance premiums ceded are expensed and any commissions recorded thereon are earned over the period the reinsurance coverage is provided in proportion to the risks to which they relate. For reinsurance treaties that have contractual minimum premium provisions, premiums ceded are recorded at the inception of the treaty based on the minimum premiums. Prepaid reinsurance represents unearned premiums ceded to reinsurance companies. Any unearned ceding commission is included in “net deferred acquisitions costs” on the consolidated balance sheets and is recorded as a reduction to the overall net deferred acquisition cost balance.

Reinsurance recoverable includes the balances due from those reinsurance companies under the terms of the Company’s reinsurance agreements for unpaid losses and loss reserves, including IBNR, and is presented net of a provision for uncollectible reinsurance. Amounts recoverable from reinsurers are estimated in a manner consistent with the estimated claim liability associated with the reinsured policy. The Company determines the portion of the IBNR liability that will be recoverable under its reinsurance contracts by reference to the terms of the reinsurance protection purchased. This determination is necessarily based on the estimate of IBNR and accordingly, is subject to the same uncertainties as the estimate of IBNR.

The Company remains liable to the extent that its reinsurers do not meet their obligations under the reinsurance contracts; therefore, the Company regularly evaluates the financial condition of its reinsurers and monitors concentration of credit risk.

d)Investments

All fixed maturity investments and equity securities are classified as trading securities as the Company has elected the fair value option permitted under U.S. GAAP for these investments at the time each security was acquired. Trading securities are carried at fair value with any change in unrealized gains or losses recognized in the consolidated income statements and included in “net realized investment gains (losses)”. As a result of this investment classification, the Company does not record any change in unrealized gains or losses on investments as a separate component of accumulated other comprehensive income on the consolidated balance sheets.

Other invested assets consist primarily of investments in hedge funds and private equity funds, which have been accounted for as trading securities as the Company has elected the fair value option as permitted under U.S. GAAP at the time each investment was acquired. In addition, included in the Company’s other invested assets are various investments which are accounted for using the equity method of accounting. Generally, the Company uses the equity method where it does not have a controlling interest and is not the primary beneficiary. Equity method investments are recorded at cost and adjusted for the

F-8

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Company’s proportionate share of earnings or losses on a quarterly lag basis. An other-than-temporary impairment charge related to the equity method investments is assessed when facts and circumstances exists that indicate an impairment may exist. An other-than-temporary impairment charge is recorded when it is determined that the carrying value of the equity method investment is below its fair value and the Company does not have the intent and ability to hold to recovery. See note 4(c) for additional information regarding an other-than-temporary impairment charge recorded in 2015 related to one of the Company’s equity method investments. No equity method investment, individually or in the aggregate, was deemed significant to disclose summarized financial data. Other investments are recorded based on valuation techniques depending on the nature of the individual assets.

At each measurement date, the Company estimates the fair value of the financial instruments using various valuation techniques. The Company utilizes, to the extent available, quoted market prices in active markets or observable market inputs in estimating the fair value of financial instruments. When quoted market prices or observable market inputs are not available, the Company may utilize valuation techniques that rely on unobservable inputs to estimate the fair value of financial instruments, which principally relates to non-binding broker-dealer quotes. The Company bases its determination of whether a market is active or inactive on the spread between what a seller is asking for a security and what a buyer is bidding for that security. Spreads that are significantly above historical spreads are considered inactive markets. The Company also considers the volume of trading activity in the determination of whether a market is active or inactive. See note 6 for additional information regarding the fair value of financial instruments.

The Company utilizes independent pricing sources to obtain market quotations for securities that have quoted prices in active markets. In general, the independent pricing sources use observable market inputs including, but not limited to, investment yields, credit risks and spreads, benchmarking of like securities, reported trades and sector groupings to determine the fair value. For a majority of the portfolio, the Company obtained two or more prices per security as of December 31, 2016. When multiple prices are obtained, a price source hierarchy is utilized to determine which price source is the best estimate of the fair value of the security. The price source hierarchy emphasizes more weighting to significant observable inputs such as index pricing and less weighting towards non-binding broker-dealer quotes. The Company will investigate any material differences, if any, between the multiple sources and determines which price best reflects the fair value of the individual security. There were no material differences between the prices obtained from the independent pricing sources and the prices obtained from the Company’s investment portfolio managers and other sources as of December 31, 2016 and 2015.

Investment securities are recorded on a trade date basis. Investment income is recognized when earned and includes the accrual of discount or amortization of premium on fixed maturity investments using the effective yield method and is net of related expenses. Interest income for fixed maturity investments is accrued and recognized based on the contractual terms of the fixed maturity investments and is included in “net investment income” in the consolidated income statements. For mortgage-backed and asset-backed securities and any other holdings for which there is a prepayment risk, prepayment assumptions are evaluated and revised on a regular basis. Revised prepayment assumptions are applied to securities on a retrospective basis to the date of acquisition. The cumulative adjustments to amortized cost required due to these changes in effective yields and maturities are recognized in net investment income in the same period as the revision of the assumptions. The Company’s share of undistributed net income from equity method investments is included in net investment income. The return on investments is managed on a total financial statement portfolio return basis, which includes the undistributed net income from equity method investments, and as such have classified these amounts in net investment income.

Realized gains and losses on the disposition of investments, which are based upon the first-in first-out method of identification, are included in “net realized investment gains (losses)” in the consolidated income statements.

e)Variable Interest Entities

The Company is involved in the normal course of business with variable interest entities (“VIEs”) as a passive investor in certain asset-backed securities issued by third-party VIEs and affiliated VIEs, as well as certain of its hedge fund and private equity fund investments. The Company performs a qualitative assessment at the date when it becomes initially involved in the VIE, followed by ongoing reassessments related to its involvement in VIEs. The Company’s maximum exposure to loss with respect to these investments is limited to the investment carrying amounts reported in the Company’s consolidated balance sheets and any unfunded commitments.

As a result of the adoption of Accounting Standards Update 2015-02, “Amendments to the Consolidation Analysis”, which became effective January 1, 2016, certain limited partnership investments and similar legal entity investments were considered

F-9

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

VIEs as there were no substantive kick-out or other participating rights. These VIEs will not be consolidated because the Company has determined it is not considered the primary beneficiary, as it does not have both the power to direct the activities that most significantly impact the economic performance of the entity and the obligation to absorb losses of the entity that could be potentially significant to the VIE or the right to receive benefits from the entity that could be potentially significant. As such, the Company continues to record its interests in these entities at fair value, with changes in fair value recorded in the consolidated income statements. The Company’s interests in these entities are recorded in “other invested assets” in the consolidated balance sheets. The Company’s maximum exposure to loss in these entities, which is the sum of the carrying value and the unfunded commitment, was $996.8 million as of December 31, 2016.

f)Translation of Foreign Currencies

Transactions in currencies other than a foreign operation’s functional currency are translated into the functional currency of the foreign operation. Foreign currency transaction gains and losses, including those arising from forward exchange contracts, are included in “foreign exchange (gain) loss” in the consolidated income statements. Functional currency assets and liabilities are translated into the reporting currency, U.S. dollars, using period-end exchange rates, and functional currency income statements are translated using average exchange rates with the related foreign currency translation adjustment recorded as a separate component of accumulated other comprehensive income or loss.

g)Cash and Cash Equivalents and Restricted

Cash Cash and cash equivalents include amounts held in banks, time deposits, commercial paper, discount notes and U.S. Treasury Bills with maturities of less than three months from the date of purchase. Restricted cash primarily relates to cash held in trust accounts in favor of cedents, other counterparties or government authorities, as well as accounts that are pledged as collateral for the Company’s letter of credit facilities.

h)Income Taxes

Allied World Switzerland and certain of its subsidiaries operate in jurisdictions where they are subject to income taxation. Current and deferred income taxes are charged or credited to operations, or to shareholders’ equity in certain cases, based upon enacted tax laws and rates applicable in the relevant jurisdiction in the period in which the tax becomes payable. Deferred income taxes are provided for all temporary differences between the bases of assets and liabilities used in the financial statements and those used in the various jurisdictional tax returns.

It is the Company’s policy to recognize interest accrued related to unrecognized tax benefits in “interest expense” and penalties in “general and administrative expenses” in the consolidated income statements. The Company has not recorded any interest or penalties during the years ended December 31, 2016, 2015 and 2014 and the Company has not accrued any payment of interest and penalties as of December 31, 2016 and 2015.

i)Employee Stock Option Compensation Plan

The Company has an employee stock option plan, which is in run-off, in which the amount of Allied World Switzerland’s common shares received as compensation through the issuance of stock options is determined by reference to the value of the shares. Compensation expense for stock options granted to employees is recorded on a straight-line basis over the option vesting period and is based on the fair value of the stock options on the grant date. The fair value of each stock option on the grant date is determined by using the Black-Scholes option-pricing model.

j)Restricted Stock Units

The Company has granted restricted stock units (“RSUs”) to certain employees. The compensation expense for the RSUs is based on the market value of Allied World Switzerland’s common shares on the grant date, and is recognized on a straight-line basis over the applicable vesting period.

The Company has also granted cash-equivalent RSUs to certain employees that vest on a straight-line basis over the applicable vesting period. The amount payable per unit awarded will be equal to the price per share of Allied World Switzerland’s common shares and as such the Company measures the value of the award each reporting period based on the period ending share price. The effects of changes in the share price at each period end during the service period are recognized as increases or decreases in compensation expense over the service period.

F-10

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

k)Performance-Based Equity Awards

The Company has granted performance-based equity awards to key employees in order to promote the long-term growth and profitability of the Company. Each award represents the right to receive a number of common shares in the future, based upon the achievement of established performance criteria during the applicable performance period. These performance-based equity awards vest after a three-year performance period. The compensation expense for these awards is based on the market value of Allied World Switzerland’s common shares on the grant date, and is recognized on a straight-line basis over the applicable performance and vesting period. The Company will also adjust the compensation expense, as a cumulative adjustment, to the extent the Company’s performance is above or below the targeted performance criteria.

The Company has also granted cash-equivalent, performance-based awards to certain employees that vest based upon the achievement of established performance criteria during the applicable performance period. These cash-equivalent, performance-based awards vest after a three-year performance period. The amount payable per unit awarded will be equal to the price per share of Allied World Switzerland’s common shares, and as such the Company measures the value of the award each reporting period based on the period-ending share price. The effects of changes in the share price at each period end during the service period are recognized as changes in compensation expense over the service period. The Company will also adjust the compensation expense, as a cumulative adjustment, to the extent the Company’s performance is above or below the targeted performance criteria.

l)Goodwill and Intangible Assets

The Company classifies its intangible assets into three categories: (1) intangible assets with finite lives subject to amortization, (2) intangible assets with indefinite lives not subject to amortization, and (3) goodwill. Intangible assets, other than goodwill, generally consist of customer renewal rights, distribution channels, internally generated software, non-compete covenants, trademarks, and insurance licenses.

For intangible assets with finite lives, the value of the assets is amortized over their expected useful lives and the expense is included in “amortization and impairment of intangible assets” in the consolidated income statements. The Company tests assets for impairment if conditions exist that indicate the carrying value may not be recoverable. If, as a result of the evaluation, the Company determines that the value of the intangible assets is impaired, then the value of the assets will be written-down in the period in which the determination of the impairment is made. See note 10 for additional information regarding an impairment recorded for one of the Company’s intangible assets with finite lives.

For indefinite lived intangible assets the Company does not amortize the intangible asset but evaluates and compares the fair value of the assets to their carrying values on an annual basis or more frequently if circumstances warrant. If, as a result of the evaluation, the Company determines that the value of the intangible assets is impaired, then the value of the assets will be written-down in the period in which the determination of the impairment is made.

Goodwill represents the excess of the cost of acquisitions over the fair value of net assets acquired and is not amortized. Goodwill is assigned at acquisition to the applicable reporting unit(s) based on the expected benefit to be received by the reporting units from the business combination. The Company determines the expected benefit based on several factors including the purpose of the business combination, the strategy of the Company subsequent to the business combination and structure of the acquired company subsequent to the business combination. A reporting unit is a component of the Company’s business that has discrete financial information that is reviewed by management. In determining the reporting unit, the Company analyzes the inputs, processes, outputs and overall operating performance of the reporting unit. The Company has several reporting units to which the goodwill is allocated to.

For goodwill, the Company performs an annual impairment test, or more frequently if circumstances are warranted. The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The results of the qualitative assessment will determine if an entity needs to proceed with the two-step goodwill impairment test. For the year ended December 31, 2016, the Company elected to bypass the qualitative assessment and performed the first step of the goodwill impairment test.

During the fourth quarter of 2015, the Company changed its annual impairment test date from September 30th to October 1st. The Company believes the change in impairment test date is preferable as it aligns to the quarter in which the Company

F-11

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

performs the impairment test, which is during the fourth quarter of each year. This change does not result in any delay, acceleration or avoidance of impairment.

The first step of the goodwill impairment test is to compare the fair value of the reporting unit with its carrying value, including goodwill. If the carrying amount of the reporting unit exceeds its fair value then the second step of the goodwill impairment test is performed.

The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill in order to determine the amount of impairment to be recognized. The implied fair value of goodwill is determined by deducting the fair value of a reporting unit’s identifiable assets and liabilities from the fair value of the reporting unit as a whole. The excess of the carrying value of goodwill above the implied goodwill, if any, would be recognized as an impairment charge in the consolidated income statements.

We recorded no goodwill impairments during the years ended December 31, 2016, 2015 and 2014.

m) Derivative Instruments

The Company utilizes derivative financial instruments as part of its overall risk management strategy. The Company recognizes all derivative financial instruments at fair value as either assets or liabilities on the consolidated balance sheets. The accounting for gains and losses associated with changes in the fair value of a derivative and the effect on the consolidated financial statements depends on its hedge designation and whether the hedge is highly effective in achieving offsetting changes in the fair value of the asset or liability hedged.

The Company uses currency forward contracts and foreign currency swaps to manage currency exposure. The Company also utilizes various derivative instruments such as interest rate futures, interest rate swaps and index options, for the purpose of managing market exposures, interest rate volatility, portfolio duration, hedging certain investments, or enhancing investment performance. These derivatives are not designated as hedges and accordingly are carried at fair value on the consolidated balance sheets with realized and unrealized gains and losses included in the consolidated income statements. Refer to Note 5 for the Company’s related disclosure.

In addition, the Company’s derivative instruments include insurance or reinsurance contracts that are required to be accounted for as derivatives. This will be the case when the insurance or reinsurance contract provides indemnification to the insured or cedent as a result of a change in a variable versus an identifiable insurable event. The Company considers these insurance and reinsurance contracts to be an extension of its overall insurance operations. The insurance and reinsurance derivative contracts are recorded at fair value, with net premiums received recognized in “Net premiums earned” over the period of policy coverage in proportion to the risk to which it relates, and other changes in the fair value of this contract is recorded in “other income” or “other expense” in the consolidated income statements. To the extent losses are incurred or ceded under these contracts, those net losses would be recorded in “net losses and loss expenses”. During the year ended December 31, 2016, the Company recorded net premiums earned of $0.1 million, other income of $7.7 million, and other expense of $3.4 million related to these insurance and reinsurance derivative contracts. During the year ended December 31, 2015, the Company recorded $1.0 million in “other expense” related to a single-trigger industry loss warranty (“ILW”). No losses were incurred during the years ended December 31, 2016 and 2015. There were no insurance or reinsurance derivative contracts outstanding for the year ended December 31, 2014.

n)Earnings Per Share

Basic earnings per share is defined as net income available to common shareholders divided by the weighted average number of common shares outstanding for the period, giving no effect to dilutive securities. Diluted earnings per share is defined as net income available to common shareholders divided by the weighted average number of common and common share equivalents outstanding calculated using the treasury stock method for all potentially dilutive securities, including employee stock options, employee share repurchase plan awards, RSUs and performance-based awards. When the effect of dilutive securities would be anti-dilutive, these securities are excluded from the calculation of diluted earnings per share.

F-12

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

o)Treasury Shares

Common shares repurchased by the Company and not subsequently canceled are classified as “treasury shares” on the consolidated balance sheets and are recorded at cost. When shares are reissued from treasury the historical cost, based on the first-in, first-out method, is used to determine the cost of the reissued shares. The difference between the cost of the treasury shares and the par value of the common stock shall be first reflected as additional paid-in capital, but to the extent additional paid-in capital is exhausted the remainder shall reduce retained earnings. The issuance of shares out of treasury have been related to vesting equity-based compensation of the Company’s employees and directors.

p)New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 provides a framework, through a five-step process, for recognizing revenue from customers, improves comparability and consistency of recognizing revenue across entities, industries, jurisdictions and capital markets, and requires enhanced disclosures. Certain contracts with customers are specifically excluded from the scope of ASU 2014-09, including, among others, insurance contracts accounted for under Accounting Standard Codification 944, Financial Services - Insurance. ASU 2014-09 is effective on January 1, 2017 with retrospective adoption required for the comparative periods. With the issuance of Accounting Standards Update 2015-14, “Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date”, this standard will be effective on January 1, 2018 with retrospective adoption required for the comparative periods. The Company does not expect the adoption of ASU 2014-09 to have a material impact on future financial statements and related disclosures.

In January 2016, the FASB issued Accounting Standards Update 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). ASU 2016-01 changes current U.S. GAAP for public entities by requiring the following, among others: (1) equity securities, except those accounted for under the equity method of accounting, to be measured at fair value with changes in fair value recognized in net income; (2) the use of the exit price when measuring fair value of financial instruments for disclosure purposes; (3) an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value; and (4) separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or notes to the financial statements. ASU 2016-01 is effective for annual periods beginning after January 1, 2018, including interim periods. Early application is permitted. The Company does not expect the adoption of ASU 2016-01 to have a material impact on future financial statements and disclosures.

In February 2016, the FASB issued Accounting Standards Update 2016-02, “Leases” (“ASU 2016-02”). ASU 2016-02 changes current U.S. GAAP for lessees to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous U.S. GAAP. ASU 2016-02 is effective for annual periods beginning after January 1, 2019, including interim periods. Early application is permitted. The Company is currently assessing the impact the adoption of ASU 2016-02 will have on future financial statements and disclosures. Specifically, the Company is still evaluating its existing leases to determine the appropriate classification under the new standard and whether it will adopt the practical expedients allowed under ASU 2016-02.

In March 2016, the FASB issued Accounting Standards Update 2016-09, “Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 modifies U.S. GAAP by requiring the following, among others: (1) all excess tax benefits and tax deficiencies are to be recognized as income tax expense or benefit on the income statement (excess tax benefits are recognized regardless of whether the benefit reduces taxes payable in the current period); (2) excess tax benefits are to be classified along with other income tax cash flows as an operating activity in the statement of cash flows; (3) in the area of forfeitures, an entity can still follow the current U.S. GAAP practice of making an entity-wide accounting policy election to estimate the number of awards that are expected to vest or may instead account for forfeitures when they occur; and (4) classification as a financing activity in the statement of cash flows of cash paid by an employer to the taxing authorities when directly withholding shares for tax withholding purposes. ASU 2016-09 is effective for annual periods beginning after January 1, 2017, including interim periods. Although early adoption is permitted, the Company will not early adopt ASU 2016-09. The Company does not expect the adoption of ASU 2016-09 to have a material impact on future financial statements and disclosures.

In June 2016, the FASB issued Accounting Standards Update 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 modifies U.S. GAAP related to the recognition of credit losses by replacing the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable

F-13

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

information to inform credit loss estimates. ASU 2016-13 would apply to financial assets such as loans, debt securities, trade receivables, off-balance sheet credit exposures, reinsurance receivables, and other financial assets that have the contractual right to receive cash. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. The Company’s invested assets are measured at fair value through net income, and therefore those invested assets would not be impacted by the adoption of ASU 2016-13. The Company has other financial assets, such as reinsurance recoverables, that could be impacted by the adoption of ASU 2016-13. ASU 2016-13 is effective for annual periods beginning after January 1, 2020, including interim periods. The Company is currently assessing the impact the adoption of ASU 2016-13 will have on future financial statements and disclosures. Specifically, the Company is developing a credit impairment methodology for its reinsurance recoverables based on the guidance in ASU 2016-13.

In August 2016, the FASB issued Accounting Standards Update 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 clarifies the classification of receipts and payments in the statement of cash flows. ASU 2016-15 provides guidance related to (1) settlement and payment of zero coupon debt instruments, (2) contingent consideration, (3) proceeds from settlement of insurance claims, (4) proceeds from settlement of corporate and bank owned life insurance policies, (5) distributions from equity method investees, (6) cash receipts from beneficial interests obtained by a transferor, and (7) general guidelines for cash receipts and payments that have more than one aspect of classification. ASU 2016-15 is effective for annual periods beginning after January 1, 2018, including interim periods. Early adoption is permitted. The Company is currently assessing the impact the adoption of ASU 2016-15 will have on future financial statements and disclosures.

In October 2016, the FASB issued Accounting Standards Update 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory” (“ASU 2016-16”). ASU 2016-16 requires entities to recognize the income tax consequences of intra-entity transfers of assets other than inventory when the transfers occur; this is a change from the current U.S. GAAP guidance which prohibits the recognition of current and deferred income taxes until the underlying assets have been sold to outside entities. ASU 2016-16 is effective for annual periods beginning after January 1, 2018, including interim periods. Early adoption is permitted. The Company is currently assessing the impact the adoption of ASU 2016-16 will have on future financial statements and disclosures.

In November 2016, the FASB issued Accounting Standards Update 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash a consensus of the FASB Emerging Issues Task Force “(“ASU 2016-18”). ASU 2016-18 changes existing U.S. GAAP by requiring the following, among others: (1) amounts generally described as restricted cash or restricted cash equivalents are to be included with the totals for cash and cash equivalents when reconciling the period change in cash and cash equivalents on the consolidated statements of cash flow, (2) in addition to the exchange rate impact on cash held in foreign currencies, entities must also include, as a component of this quantified amount, the impact on cash equivalents and amounts generally described as restricted cash or restricted cash equivalents as a separate component of the reconciliation referenced in (1) above, (3) when cash, cash equivalents, and amounts generally deemed as restricted cash or restricted cash equivalents are presented in more than one line item within the consolidated balance sheet, such line items must also be presented either on the face of the consolidated statements of cash flow or in the notes to the financial statements, (4) a disclosure of the nature of restrictions on an entity’s cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents, and (5) any applicable change in accounting principle disclosures in the first interim and annual period in which the update is adopted. ASU 2016-18 is effective for annual periods beginning after January 1, 2018, including interim periods, and is to be applied retrospectively to all periods presented. Early adoption is permitted. The Company is currently assessing the impact the adoption of ASU 2016-18 will have on future financial statements and disclosures.

In January 2017, the FASB issued Accounting Standards Update 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 changes existing U.S. GAAP by requiring the following, among others: (1) the elimination of step 2 of the goodwill impairment test; entities will no longer utilize the implied fair value of their assets and liabilities for purposes of testing goodwill for impairment, (2) the quantitative portion of the goodwill impairment test will be performed by comparing the fair value of a reporting unit with its carrying amount; an impairment charge is to be recognized for the excess of carrying amount over fair value, but only to the extent of the amount of goodwill allocated to that reporting unit, and (3) foreign currency translation adjustments are not to be allocated to a reporting unit from an entity’s accumulated other comprehensive income; the reporting unit’s carrying amount should include only the currently translated balances of the assets and liabilities assigned to the reporting unit. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company plans to adopt ASU 2017-04 as of January 1, 2017.

F-14

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

3.ACQUISITIONS

a)Hong Kong and Singapore Branches of Royal & Sun Alliance Insurance plc

On April 1, 2015, the Company completed its acquisitions of certain assets and assumed certain liabilities of the Hong Kong and Singapore operations of RSA to further expand its international insurance operations. The assets acquired and liabilities assumed constituted a business, and as such the Company accounted for the acquisitions of the RSA branches under the acquisition method in accordance with U.S. GAAP. The consideration for the branches was $176.5 million in cash, after receipt of cash for post-closing adjustments. The post-closing adjustments were based on the net asset value of the acquired branches at the date of acquisitions that resulted in the Company receiving $17.4 million in cash. The Company has incurred a cumulative total of $9.2 million in acquisition related expenses, mostly related to advisory, legal and valuation services rendered, which were recorded in “other expense” in the consolidated income statements in 2015 and 2014.

The following table summarizes the consideration paid for the Hong Kong and Singapore branches of RSA and the preliminary amounts of the assets acquired and liabilities assumed at the acquisition date.

	Fair Value
Consideration:
Cash consideration	$	176.5
Recognized amounts of identifiable assets acquired and liabilities assumed:
Fixed maturity investments	246.1
Cash and cash equivalents	47.1
Insurance balances receivable	114.4
Prepaid reinsurance	17.5
Reinsurance recoverable	58.9
Value of business acquired	28.9
Intangible assets	79.9
Other assets	9.9
Reserve for losses and loss expenses	(314.1		)
Unearned premiums	(150.5		)
Reinsurance balances payable	(35.8		)
Net deferred tax liabilities	(11.9		)
Accounts payable and accrued liabilities	(20.1		)
Total identifiable net assets acquired	70.3
Goodwill	106.2
Total net assets acquired	$	176.5

Of the $106.2 million of goodwill acquired, $54.7 million and $51.5 million related to the Hong Kong and Singapore branches, respectively. None of the goodwill recorded was deductible for tax purposes.

The Company recognized identifiable finite lived intangible assets, including an intangible asset for the value of businesses acquired (“VOBA”), which will be amortized over a weighted average period of 12 years. The Company also recorded an insurance-related intangible liability related to the reserve for loss and loss expenses of $8.3 million that will be amortized over a weighted average period of 8 years, and included in “net losses and loss expenses” in the consolidated income statements. The insurance-related intangible liability related to the reserve for loss and loss expenses was calculated as the additional risk margin less the impact related to discounting the net reserves for losses and loss expenses. Since the fair value adjustment increased the net reserve for losses and loss expenses, it has been recorded as an insurance-related intangible liability.

F-15

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

The following is a breakdown of the intangible assets acquired.

	Singapore Branch		Estimated Useful Life	Hong Kong Branch		Estimated Useful Life	Total
VOBA	$	17.8	2 years	$	11.1	1.5 years	$	28.9
Customer renewals	8.6		4 years	4.4		5 years	13.0
Distribution channels	47.7		18 years	19.2		18 years	66.9
	$	74.1		$	34.7		$	108.8

The following is an explanation of identifiable finite lived intangible assets acquired:

·VOBA:  Represents the difference between the expected future losses and expenses and the associated unearned premium reserve. This intangible asset will be amortized consistent with how the associated unearned premiums will be earned and will be recorded in “acquisition costs” in the consolidated income statements.

·Customer renewals:  The value of inforce policies renewing taking into consideration the net cash flows generated from these renewals. The amortization expense for this intangible asset will be recorded in “amortization and impairment of intangible assets” in the consolidated income statements.

·Distribution channels:  The value of access to contractual and non-contractual relationships (e.g., brokers and affinity relationships) taking into consideration the net cash flows generated from these relationships. The amortization expense for this intangible asset will be recorded in “amortization and impairment of intangible assets” in the consolidated income statements.

The following summarizes the results of the Hong Kong and Singapore branches that have been included in the Company’s consolidated income statement since the acquisitions closed on April 1, 2015.

	From April 1, 2015 to December 31, 2015
Total revenue	$	155.3
Net loss	$	(28.9	)

The following unaudited pro forma information presents the combined results of the Company and the acquired Hong Kong and Singapore RSA branches for the years ended December 31, 2015 and 2014, with pro forma adjustments related to the acquisition method of accounting as if the acquisitions had been consummated as of January 1, 2014. This unaudited pro forma information is not necessarily indicative of what would have occurred had the acquisitions and related transactions been made on the dates indicated, or of future results of the Company.

	Year Ended December 31, 2015		Year Ended December 31, 2014
Total revenue	$	2,594.2	$	2,681.7
Net income	$	74.2	$	505.9

b) Acquisition of Labuan branch of RSA

On April 30, 2015, the Company also acquired the assets and assumed the liabilities of the Labuan operations of RSA for consideration of one British pound sterling. The Company recorded goodwill of $1.4 million related to this acquisition.

c) Acquisition of Latin American Underwriters Holdings, Ltd.

In January 2015, the Company acquired Latin American Underwriters Holdings Ltd. (“LAU”) for cash consideration of $5.1 million. LAU had previously underwritten trade credit insurance and political risk coverages solely for the Company since 2010. As part of the acquisition, the Company recorded goodwill of $2.5 million and customer renewal intangibles of $3.6 million, which have a three-year useful life. The Company also recorded $1.0 million of contingent consideration related to certain earn-out payments. During the third quarter of 2015, it was determined that LAU will not achieve any of the earn-out payments. As a result, the Company reduced the fair value of the contingent consideration to zero with the corresponding gain

F-16

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

recorded as a reduction in “general and administrative expenses” in the consolidated income statements. See note 10 for additional information regarding an impairment recorded related to the customer renewal intangible asset.

4.INVESTMENTS

a)Trading Securities

Securities accounted for at fair value with changes in fair value recognized in the consolidated income statements by category are as follows:

	December 31, 2016				December 31, 2015
	Fair Value		Amortized Cost		Fair Value		Amortized Cost
U.S. government and government agencies	$	1,426.0	$	1,454.5	$	1,434.0	$	1,437.9
Non-U.S. government and government agencies	469.9		496.5		556.8		579.2
States, municipalities and political subdivisions	354.1		355.8		413.5		396.0
Corporate debt:
Financial institutions	1,032.7		1,033.6		1,275.4		1,277.3
Industrials	1,321.3		1,322.3		1,308.1		1,345.6
Utilities	140.0		140.7		118.9		125.4
Mortgage-backed:
Agency mortgage-backed	614.5		612.5		751.8		745.4
Non-agency residential mortgage-backed	23.9		22.7		34.0		32.4
Commercial mortgage-backed	598.0		636.1		582.8		600.1
Asset-backed	757.3		772.6		726.2		751.1
Total fixed maturity investments, trading	$	6,737.7	$	6,847.4	$	7,201.5	$	7,290.6

	December 31, 2016				December 31, 2015
	Fair Value		Cost		Fair Value		Cost
Equity securities	$	243.9	$	235.0	$	403.0	$	395.3
Other invested assets	897.8		831.2		840.2		770.9
	$	1,141.7	$	1,066.2	$	1,243.2	$	1,166.2

Other invested assets, included in the table above, include investments in private equity funds, hedge funds and a high yield loan fund that are accounted for at fair value, but excludes other private securities described below in Note 4(b) that are accounted for using the equity method of accounting.

F-17

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

b)Other Invested Assets

Details regarding the carrying value, redemption characteristics and unfunded investment commitments of the other invested assets portfolio as of December 31, 2016 and 2015 were as follows:

Fund Type	Carrying Value as of December 31, 2016		Investments with Redemption Restrictions		Estimated Remaining Restriction Period	Investments without Redemption Restrictions		Redemption Frequency(1)	Redemption Notice Period(1)	Unfunded Commitments
Private equity	$	281.0	$	281.0	1 - 15 Years	$	—			$	219.3
Levered credit	204.9		204.9		3 - 9 Years	—				190.8
Real estate	68.9		68.9		6 - 8 Years	—				191.6
Distressed	5.0		5.0		1 Year	—				3.8
Total private equity	559.8		559.8			—				605.5
Distressed	175.3		—			175.3		Quarterly	60 Days	—
Relative value credit	84.8		—			84.8		Quarterly	60 Days	—
Equity long/short	67.9		—			67.9		Quarterly	45 Days	—
Fund of funds	10.0		—			10.0		Quarterly	60 Days	—
Total hedge funds	338.0		—			338.0				—
Total other invested assets at fair value	897.8		559.8			338.0				605.5
Other private securities	62.9		—			62.9				—
Total other invested assets	$	960.7	$	559.8		$	400.9			$	605.5

Fund Type	Carrying Value as of December 31, 2015		Investments with Redemption Restrictions		Estimated Remaining Restriction Period	Investments without Redemption Restrictions		Redemption Frequency(1)	Redemption Notice Period(1)	Unfunded Commitments
Private equity	$	236.4	$	236.4	1 - 7 Years	$	—			$	231.0
Levered credit	205.9		205.9		4 - 8 Years	—				179.0
Distressed	5.1		5.1		2 Years	—				3.8
Real estate	—		—		7 - 9 Years	—				200.0
Total private equity	447.4		447.4			—				613.8
Distressed	215.6		54.6		2 Years	161.0		Monthly	90 Days	—
Relative value credit	105.4		—			105.4		Quarterly	60 Days	—
Equity long/short	58.0		—			58.0		Quarterly	45 Days	—
Total hedge funds	379.0		54.6			324.4				—
High yield loan fund	13.8		—			13.8		Monthly	30 days	—
Total other invested assets at fair value	840.2		502.0			338.2				613.8
Other private securities	126.5		—			126.5				—
Total other invested assets	$	966.7	$	502.0		$	464.7			$	613.8

(1) The redemption frequency and notice periods only apply to the investments without redemption restrictions.

During the year ended December 31, 2016, the Company sold a portion of one of its other private securities. As a result of the sale, the Company no longer maintained significant influence over the operations of this other private security and discontinued the use of the equity method of accounting for the remaining equity interest still owned by the Company. The

F-18

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Company recorded a realized gain of $21.7 million related to the equity interest sold and recorded an unrealized gain of $8.1 million related to the fair value of the remaining interest still owned by the Company. The Company will account for its remaining interest as a trading security, with any changes in fair value recorded as an unrealized gain or loss in the consolidated income statements.

In general, the Company has invested in hedge funds that require at least 30 days’ notice of redemption, and may be redeemed on a monthly, quarterly, semi-annual, annual or longer basis, depending on the fund. Certain hedge funds have lock-up periods ranging from one to three years from initial investment. A lock-up period refers to the initial amount of time an investor is contractually required to invest before having the ability to redeem. Funds that provide for periodic redemptions may, depending on the funds’ governing documents, have the ability to deny or delay a redemption request, called a “gate.” The fund may implement this restriction because the aggregate amount of redemption requests as of a particular date exceeds a specified level, generally ranging from 15% to 25% of the fund’s net assets. The gate is a method for executing an orderly redemption process to reduce the possibility of adversely affecting investors in the fund. Typically, the imposition of a gate delays a portion of the requested redemption, with the remaining portion settled in cash sometime after the redemption date. Certain funds may impose a redemption fee on early redemptions. Interests in private equity funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the fund.

The following describes each investment type:

·Private equity (primary and secondary):  Primary equity funds include funds that may invest in companies and general partnership interests, as well as direct investments. Secondary funds buy limited partnership interests from existing limited partners of primary private equity funds. As owners of private equity, funds may seek liquidity by selling their existing interests, plus any remaining commitment, to secondary market participants. These funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the funds.

·Levered credit (including mezzanine debt):  Levered credit funds invest across the capital structures of upper middle market and middle market companies in connection with leveraged buyouts, mergers and acquisitions, recapitalizations, growth financings, refinancings and other corporate purposes. The most common position in the capital structure of mezzanine funds will be between the senior secured debt holder and the equity; however, the funds in which we are invested may include secured debt, subordinated debt, preferred stock and/or private equity. These funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the funds.

·Real estate funds:  Private real estate funds invest directly (through debt and equity) in commercial real estate (multifamily, industrial, office, student housing and retail) as well as residential property. Real estate managers have diversified portfolios that generally follow core, core-plus, value-added or opportunistic strategies. These funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the funds.

·Distressed funds:  In distressed debt investing, managers take positions in the debt of companies experiencing significant financial difficulties, including bankruptcy, or in certain positions of the capital structure of structured securities. The manager relies on the fundamental analysis of these securities, including the claims on the assets and the likely return to bondholders. Certain funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the funds.

·Relative value credit funds:  These funds seek to take exposure to credit-sensitive securities, long and/or short, based upon credit analysis of issuers and securities and credit market views.

·Equity long/short funds:  In equity long/short funds, managers take long positions in companies they deem to be undervalued and short positions in companies they deem to be overvalued. Long/short managers may invest in countries, regions or sectors and vary by their use of leverage and by their targeted net long position.

·Fund of funds:  Fund of funds allocate assets among multiple investment managers unaffiliated with the fund of funds sponsor employing a variety of proprietary investment strategies. Fund of funds strategies will invest in a portfolio of funds that primarily pursue the following investment strategies: equity, macro, event driven and credit.

·Other private securities:  These securities mostly include strategic non-controlling minority investments in private asset management companies and other insurance related investments that are accounted for using the equity method of accounting.

·High yield loan fund:  A long-only private mutual fund that invests in high yield fixed income securities.

F-19

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

c) Net Investment Income

	Year Ended December 31,
	2016			2015			2014
Fixed maturity investments	$	191.0		$	164.2		$	149.5
Equity securities	5.1			13.3			17.6
Other invested assets: hedge funds and private equity	23.4			19.6			12.6
Other invested assets: other private securities	13.7			2.8			13.3
Cash and cash equivalents	2.9			1.7			2.1
Expenses	(18.3		)	(19.5		)	(18.2		)
Net investment income	$	217.8		$	182.1		$	176.9

Net investment income from other invested assets: other private securities included the undistributed net income from investments accounted for using the equity method of accounting. The income reported for other invested assets: other private securities for the year ended December 31, 2015 included an other-than-temporary impairment of $6.3 million recorded in the second quarter of 2015 related to one of the Company’s equity method investments. The Company recorded the other-than-temporary impairment as the fair value of this investment was below its carrying value. The income reported for other invested assets: other private securities for the year ended December 31, 2014 included a loss of $9.3 million recorded for an equity method investment due to impairment charges that it recorded. At the time, the Company determined the fair value of this investment and concluded that the fair value exceeded the Company’s carrying value and as such no other-than-temporary impairment was recorded.

d) Components of Realized Gains and Losses

	Year Ended December 31,
	2016			2015			2014
Gross realized gains on sale of invested assets	$	159.5		$	180.3		$	195.4
Gross realized losses on sale of invested assets	(121.3		)	(106.4		)	(48.2		)
Net realized and unrealized losses on derivatives	(19.6		)	(15.4		)	(39.0		)
Mark-to-market (losses) gains:
Debt securities, trading	(17.2		)	(126.3		)	(1.7		)
Equity securities, trading	5.8			(41.7		)	0.4
Other invested assets, trading	(5.1		)	(18.1		)	(17.9		)
Net realized investment gains (losses)	$	2.1		$	(127.6	)	$	89.0

e) Pledged Assets

As of December 31, 2016 and 2015, $2,687.7 million and $2,748.9 million, respectively, of cash and cash equivalents and investments were deposited, pledged or held in trust accounts in favor of ceding companies and other counterparties or government authorities to comply with reinsurance contract provisions and insurance laws.

In addition, as of December 31, 2016 and 2015, a further $587.6 million and $579.3 million, respectively, of cash and cash equivalents and investments were pledged as collateral for the Company’s letter of credit facilities. See Note 11(g) for details on the Company’s credit facilities.

F-20

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

5.DERIVATIVE INSTRUMENTS

As of December 31, 2016 and 2015, none of the Company’s derivatives were designated as hedges for accounting purposes. The following table summarizes information on the location and amounts of derivative fair values on the consolidated balance sheets:

	December 31, 2016								December 31, 2015
	Asset Derivative Notional Amount		Asset Derivative Fair Value		Liability Derivative Notional Amount		Liability Derivative Fair Value		Asset Derivative Notional Amount		Asset Derivative Fair Value		Liability Derivative Notional Amount		Liability Derivative Fair Value
Foreign exchange contracts	$	103.2	$	10.4	$	4.1	$	0.1	$	41.1	$	0.1	$	244.8	$	3.0
Interest rate swaps	—		—		—		—		—		—		328.2		0.5
Insurance contracts	225.0		7.4		—		—		—		—		—		—
Reinsurance contracts	—		—		110.0		4.0		—		—		—		—
Total derivatives	$	328.2	$	17.8	$	114.1	$	4.1	$	41.1	$	0.1	$	573.0	$	3.5

Derivative assets and derivative liabilities are classified within “other assets” or “accounts payable and accrued liabilities” on the consolidated balance sheets.

The following table provides the net realized and unrealized (losses) gains on derivatives not designated as hedges recorded on the consolidated income statements:

	Year Ended December 31,
	2016			2015			2014
Foreign exchange contracts	$	(2.2	)	$	(7.3	)	$	0.9
Total included in foreign exchange (gain) loss	(2.2		)	(7.3		)	0.9
Put options	—			—			0.5
Foreign exchange contracts	(11.9		)	0.2			3.5
Interest rate swaps	(6.8		)	(13.4		)	(45.4		)
Interest rate futures	(0.9		)	(2.2		)	2.4
Total included in net realized investment gains (losses)	(19.6		)	(15.4		)	(39.0		)
Insurance contracts	7.4			—			—
Reinsurance contracts	(3.1		)	—			—
Total included in other income (other expense)	4.3			—			—
Total realized and unrealized (losses) gains on derivatives	$	(17.5	)	$	(22.7	)	$	(38.1	)

The foreign exchange contracts loss recorded during the year ended December 31, 2016 was due to hedging our investment exposure to the Euro and Japanese Yen. The losses related to interest rate swap contracts for the years ended December 31, 2015 and 2014 were the result of selling interest rate swap contracts to reduce the duration of the investment portfolio. Given the decrease in interest rates during those years, the Company recorded a loss related to these interest rate swap contracts.

Derivative Instruments Not Designated as Hedging Instruments

The Company is exposed to foreign currency risk in its investment portfolio. Accordingly, the fair values of the Company’s investment portfolio are partially influenced by the change in foreign exchange rates. These foreign currency hedging activities have not been designated as specific hedges for financial reporting purposes.

The Company’s insurance and reinsurance subsidiaries and branches operate in various foreign countries and consequently the Company’s underwriting portfolio is exposed to foreign currency risk. The Company manages foreign currency risk by seeking to match liabilities under the insurance policies and reinsurance contracts that it writes and that are payable in foreign currencies with cash and investments that are denominated in such currencies. When necessary, the Company may also use derivatives to economically hedge unmatched foreign currency exposures, specifically forward contracts and currency options.

F-21

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

For example, during 2014, the Company purchased a forward contract to economically hedge a portion of its foreign currency exposure related to the consideration to be paid for the Hong Kong and Singapore operations of RSA.

The Company also purchases and sells interest rate future and interest rate swap contracts to actively manage the duration and yield curve positioning of its fixed income portfolio. Interest rate futures and interest rate swaps can efficiently increase or decrease the overall duration of the portfolio. Additionally, interest rate future and interest rate swap contracts can be utilized to obtain the desired position along the yield curve in order to protect against certain future yield curve shapes.

The Company also purchases options to actively manage the Company’s equity portfolio.

The Company also has entered into insurance and reinsurance contracts that are required to be accounted for as derivatives. This will be the case when the insurance or reinsurance contract provides indemnification to the insured or cedent as a result of a change in a variable versus an identifiable insurable event, such as a single-trigger ILW. The Company considers these insurance and reinsurance contracts to be an extension of its overall insurance operations.

6.FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon whether the inputs to the valuation of an asset or liability are observable or unobservable in the market at the measurement date, with quoted market prices being the highest level (Level 1) and unobservable inputs being the lowest level (Level 3). A fair value measurement will fall within the level of the hierarchy based on the input that is significant to determining such measurement. The three levels are defined as follows:

·Level 1:  Observable inputs to the valuation methodology that are quoted prices (unadjusted) for identical assets or liabilities in active markets.

·Level 2:  Observable inputs to the valuation methodology other than quoted market prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets in markets that are not active and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

·Level 3:  Inputs to the valuation methodology that are unobservable for the asset or liability.

F-22

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

The following table shows the fair value of the Company’s financial instruments and where in the fair value hierarchy the fair value measurements are included as of the dates indicated below:

December 31, 2016	Carrying amount		Total fair value		Level 1		Level 2		Level 3
ASSETS:
Fixed maturity investments:
U.S. government and government agencies	$	1,426.0	$	1,426.0	$	1,379.6	$	46.4	$	—
Non-U.S. government and government agencies	469.9		469.9		—		469.9		—
States, municipalities and political subdivisions	354.1		354.1		—		354.1		—
Corporate debt:
Financial institutions	1,032.7		1,032.7		—		1,031.2		1.5
Industrials	1,321.3		1,321.3		—		1,321.3		—
Utilities	140.0		140.0		—		140.0		—
Mortgage-backed:
Agency mortgage-backed	614.5		614.5		—		475.9		138.7
Non-agency residential mortgage-backed	23.9		23.9		—		23.9		—
Commercial mortgage-backed	598.0		598.0		—		598.0		—
Asset-backed	757.3		757.3				697.8		59.5
Total fixed maturity investments	6,737.7		6,737.7		1,379.6		5,158.5		199.7
Equity securities	243.9		243.9		219.2		—		24.7
Other invested assets(1)	897.8		897.8		—		—		—
Total investments	7,879.4		7,879.4		1,598.8		5,158.5		224.4
Derivative assets:
Foreign exchange contracts	10.4		10.4		—		10.4		—
Insurance contracts	7.4		7.4		—		—		7.4
LIABILITIES:
Derivative liabilities:
Foreign exchange contracts	0.1		0.1		—		0.1		—
Reinsurance contracts	4.0		4.0		—		—		4.0
Senior notes	794.2		827.1		—		827.1		—
Other long-term debt	$	22.0	$	26.7	$	—	$	26.7	$	—

F-23

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

December 31, 2015	Carrying amount		Total fair value		Level 1		Level 2		Level 3
ASSETS:
Fixed maturity investments:
U.S. government and government agencies	$	1,434.0	$	1,434.0	$	1,396.4	$	37.6	$	—
Non-U.S. government and government agencies	556.8		556.8		—		556.8		—
States, municipalities and political subdivisions	413.5		413.5		—		413.5		—
Corporate debt
Financial institutions	1,275.4		1,275.4		—		1,275.4		—
Industrials	1,308.1		1,308.1		—		1,308.1		—
Utilities	118.9		118.9		—		118.9		—
Mortgage-backed
Agency mortgage-backed	751.8		751.8		—		650.8		101.1
Non-agency residential mortgage-backed	34.0		34.0		—		29.0		5.0
Commercial mortgage-backed	582.8		582.8		—		582.8		—
Asset-backed	726.2		726.2		—		663.2		63.0
Total fixed maturity investments	7,201.5		7,201.5		1,396.4		5,636.1		169.1
Equity securities	403.0		403.0		403.0		—		—
Other invested assets(1)	840.2		840.2		—		—		—
Total investments	8,444.7		8,444.7		1,799.4		5,636.1		169.1
Derivative assets:
Foreign exchange contracts	0.1		0.1		—		0.1		—
LIABILITIES:
Derivative liabilities:
Foreign exchange contracts	3.0		3.0		—		3.0		—
Interest rate swaps	0.5		0.5		—		0.5		—
Senior notes	1,292.9		1,337.9		—		1,337.9		—
Other long-term debt	$	23.0	$	27.7	$	—	$	27.7	$	—

(1) In accordance with U.S. GAAP, other invested assets, excluding other private securities, are measured at fair value using the net asset value per share (or its equivalent) practical expedient and have not been classified in the fair value hierarchy.

The following describes the valuation techniques used by the Company to determine the fair value of financial instruments held as of the balance sheet date.

Fair Value of Financial Instruments

U.S. government and government agencies:  Comprised primarily of bonds issued by the U.S. Treasury, the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association. The fair values of the Company’s U.S. government securities are based on quoted market prices in active markets and are included in the Level 1 fair value hierarchy. The Company believes the market for U.S. Treasury securities is an actively traded market given the high level of daily trading volume. The fair values of U.S. government agency securities are priced using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. government agency securities are included in the Level 2 fair value hierarchy.

Non-U.S. government and government agencies:  Comprised of fixed income obligations of non-U.S. governmental entities. The fair values of these securities are based on prices obtained from international indices and are included in the Level 2 fair value hierarchy.

F-24

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

States, municipalities and political subdivisions:  Comprised of fixed income obligations of U.S. domiciled state and municipality entities. The fair values of these securities are based on prices obtained from the new issue market, and are included in the Level 2 fair value hierarchy.

Corporate debt:  Comprised of bonds issued by or loan obligations of corporations that are diversified across a wide range of issuers and industries. The fair values of corporate debt that are short-term are priced using spread above the LIBOR yield curve, and the fair value of corporate debt that are long-term are priced using the spread above the risk-free yield curve. The spreads are sourced from broker-dealers, trade prices and the new issue market. As the significant inputs used to price corporate bonds are observable market inputs, the fair values of corporate debt are included in the Level 2 fair value hierarchy, unless the significant inputs used to price the corporate debt securities are broker-dealer quotes and the Company is not able to determine if those quotes are based on observable market inputs, in which case the fair value is included in the Level 3 hierarchy.

Mortgage-backed:  Primarily comprised of residential and commercial mortgages originated by both U.S. government agencies (such as the Federal National Mortgage Association) and non-U.S. government agencies. The fair values of mortgage-backed securities originated by U.S. government agencies and non-U.S. government agencies are based on a pricing model that incorporates prepayment speeds and spreads to determine appropriate average life of mortgage-backed securities. The spreads are sourced from broker-dealers, trade prices and the new issue market. As the significant inputs used to price the mortgage-backed securities are observable market inputs, the fair values of these securities are included in the Level 2 fair value hierarchy, unless the significant inputs used to price the mortgage-backed securities are broker-dealer quotes and the Company is not able to determine if those quotes are based on observable market inputs, in which case the fair value is included in the Level 3 hierarchy.

Asset-backed:  Principally comprised of bonds backed by pools of automobile loan receivables, home equity loans, credit card receivables and collateralized loan obligations originated by a variety of financial institutions. The fair values of asset-backed securities are priced using prepayment speed and spread inputs that are sourced from the new issue market or broker-dealer quotes. As the significant inputs used to price the asset-backed securities are observable market inputs, the fair values of these securities are included in the Level 2 fair value hierarchy, unless the significant inputs used to price the asset-backed securities are broker-dealer quotes and the Company is not able to determine if those quotes are based on observable market inputs, in which case the fair value is included in the Level 3 hierarchy.

Equity securities:  Comprised of U.S. and foreign common and preferred stocks and mutual funds. Equities are generally included in the Level 1 fair value hierarchy as prices are obtained from market exchanges in active markets. Non-U.S. mutual funds where the net asset value (“NAV”) is not provided on a daily basis are included in the Level 3 fair value hierarchy. Also, the Company’s remaining equity interest in an equity security that it no longer accounts for under the equity method of accounting is included in the Level 3 fair value hierarchy as the fair value is based on the enterprise value of that security which is not a publicly traded company.

Other invested assets:  Comprised of funds invested in a range of diversified strategies. In accordance with U.S. GAAP, the fair values of the funds are based on the NAV of the funds as reported by the fund manager. The Company does not measure its investments that are accounted for using the equity method of accounting at fair value, unless an other-than-temporary impairment is recorded.

Derivative instruments:  The fair value of foreign exchange contracts and interest rate futures and swaps are priced from quoted market prices for similar exchange-traded derivatives and pricing valuation models that utilize independent market data inputs. The fair value of foreign exchange contracts and interest futures and swaps are included in the Level 2 fair value hierarchy. The fair value of the insurance and reinsurance contracts are based on an internal model that estimates the expected value based on multiple scenarios (i.e., Monte-Carlo simulation) and discounted back to current value. The key unobservable inputs are the discount rate, which was 10%, and the values of the underlying insured risks. Given the inputs to the internal model are unobservable, the fair value of the insurance and reinsurance contracts are included in the Level 3 fair value hierarchy.

Senior notes:  The fair value of the senior notes is based on reported trades. The fair value of the senior notes is included in the Level 2 fair value hierarchy.

F-25

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Other long-term debt:  Comprised of the mortgage and credit facility associated with the purchase of office space in Switzerland. The fair value of the other long-term debt is based on the value of the debt using current interest rates. The fair value of the long-term debt is included in the Level 2 fair value hierarchy.

Non-recurring Fair Value of Financial Instruments

The Company measures the fair value of certain assets on a non-recurring basis, generally quarterly, annually, or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. These assets include investments accounted for using the equity method, goodwill and intangible assets. The Company uses a variety of techniques to measure the fair value of these assets when appropriate, as described below:

Investments accounted for using the equity method:  When the Company determines that the carrying value of these assets may not be recoverable, the Company records the assets at fair value with the loss recognized in income. In such cases, the Company measures the fair value of these assets using the techniques discussed above.

Goodwill and intangible assets:  The Company tests goodwill and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, but at least annually for goodwill and indefinite-lived intangibles. When the Company determines that goodwill and indefinite-lived intangible assets may be impaired, the Company uses various techniques, including discounted expected future cash flows and market multiple models, to measure fair value.

F-26

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Rollforward of Level 3 Financial Instruments

The following is a rollforward of the beginning and ending balance of financial instruments using significant unobservable inputs (Level 3):

	Fair value measurements using significant unobservable inputs (Level 3):
	Corporate Debt - Financial Institutions		Agency MBS			Non-agency RMBS			CMBS			Asset-backed			Equities			Insurance contracts		Reinsurance contracts
Balance at December 31, 2014	$	—	$	180.1		$	—		$	1.7		$	55.4		$	43.3		$	—	$	—
Realized and unrealized gains (losses) included in net income	—		(1.0		)	(0.1		)	0.1			(6.1		)	3.5			—		—
Purchases	—		17.7			5.2			1.8			18.4			—			—		—
Sales	—		(95.7		)	(0.1		)	(3.6		)	(23.1		)	(46.8		)	—		—
Transfers into Level 3 from Level 2	—		—			—			—			37.3			—			—		—
Transfers out of Level 3 into Level 2(1)	—		—			—			—			(18.9		)	—			—		—
Balance at December 31, 2015	$	—	$	101.1		$	5.0		$	—		$	63.0		$	—		$	—	$	—
Realized and unrealized gains (losses) included in net income	—		(6.4		)	—			—			3.1			8.1			7.4		(4.0		)
Purchases	1.5		212.6			—			—			31.2			16.6			—		—
Sales	—		(175.3		)	—			—			(27.2		)	—			—		—
Transfers into Level 3 from Level 2	—		6.7			—			—			8.0			—			—		—
Transfers out of Level 3 into Level 2(1)	—		—			(5.0		)	—			(18.6		)	—			—		—
Balance at December 31, 2016	$	1.5	$	138.7		$	—		$	—		$	59.5		$	24.7		$	7.4	$	(4.0	)
Realized and unrealized losses (gains) included in net income for investments still held as of December 31, 2016	$	—	$	(6.4	)	$	—		$	—		$	1.9		$	8.1		$	7.4	$	(4.0	)
Realized and unrealized gains (losses) included in net income for investments still held as of December 31, 2015	$	—	$	(1.5	)	$	(0.1	)	$	—		$	(0.3	)	$	—		$	—	$	—

(1) Transfers out of Level 3 are primarily attributable to the availability of market observable information.

The Company attempts to verify the significant inputs used by broker-dealers in determining the fair value of the securities priced by them. If the Company could not obtain sufficient information to determine if the broker-dealers were using significant observable inputs, such securities have been transferred to the Level 3 fair value hierarchy. The Company believes the prices obtained from the broker-dealers are the best estimate of fair value of the securities being priced as the broker-dealers are typically involved in the initial pricing of the security, and the Company has compared the price per the broker-dealer to other pricing sources and noted no material differences. The Company recognizes transfers between levels at the end of the reporting period. There were no transfers between Level 1 and Level 2 during the period.

The Company’s external investment accounting service provider receives prices from internationally recognized independent pricing services to measure the fair values of its fixed maturity investments. Pricing sources are evaluated and selected in a manner to ensure that the most reliable sources are used. The independent pricing sources obtain market quotations and actual transaction prices for securities that have quoted prices in active markets. Each pricing service has its own proprietary method for determining the fair value of securities that are not actively traded. In general, these methods involve the use of “matrix pricing” in which the independent pricing service uses observable market inputs, including, but not limited to, reported trades, benchmark yields, broker-dealer quotes, interest rates, prepayment speeds, default rates and such other inputs as are available from market sources to determine a reasonable fair value.

F-27

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

All of the Company’s fixed maturity investment securities classified as Level 3 are valued based on unadjusted broker-dealer quotes. This includes less liquid securities such as lower quality asset-backed securities, commercial mortgage-backed securities and residential mortgage-backed securities. The primary valuation inputs include monthly payment information, the probability of default, loss severity rates and estimated prepayment rates. Significant changes in these inputs in isolation would result in a significantly lower or higher fair value measurement. In general, a change in the assumption of the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity in an event of default and prepayment rates.

The Company records the unadjusted price provided and validates this price through a process that includes, but is not limited to monthly and/or quarterly: (i) comparison of prices between two independent sources, with significant differences requiring additional price sources; (ii) quantitative analysis (e.g., comparing the quarterly return for each managed portfolio to their target benchmark, with significant differences identified and investigated); (iii) evaluation of methodologies used by external parties to calculate fair value, including a review of the inputs used for pricing; (iv) comparing the price to the Company’s knowledge of the current investment market; and (v) back-testing, which includes randomly selecting purchased or sold securities and comparing the executed prices to the fair value estimates from the pricing service. In addition to internal controls, management relies on the effectiveness of the valuation controls in place at the Company’s external investment accounting service provider (supported by a Statement on Standards for Attestation Engagements No. 16 report) in conjunction with regular discussion and analysis of the investment portfolio’s structure and performance.

7.RESERVE FOR LOSSES AND LOSS EXPENSES

a)Basis for estimating the reserves for losses and loss expenses

The reserve for losses and loss expenses is comprised of two main elements: outstanding loss reserves (“OSLR,” also known as case reserves) and reserves for losses incurred but not reported (“IBNR”). OSLR relate to known claims and represent management’s best estimate of the likely loss settlement. IBNR reserves relate primarily to unreported events that, based on industry information, management’s experience and actuarial evaluation, can reasonably be expected to have occurred and are reasonably likely to result in a loss to the Company. IBNR reserves also relate to estimated development of reported events that based on industry information, management’s experience and actuarial evaluation, can reasonably be expected to reach the Company’s attachment point and are reasonably likely to result in a loss. The Company also includes in IBNR reserves changes in the values of claims that have been reported but are not yet settled. Each claim is settled individually based upon its merits and it is not unusual for a claim to take years after being reported to settle, especially if legal action is involved. As a result, reserves for losses and loss expenses include significant estimates for IBNR reserves.

The reserve for IBNR is estimated by management for each line of business based on various factors, including underwriters’ expectations about loss experience, actuarial analysis, comparisons with the results of industry benchmarks and loss experience to date. The Company implicitly factors into IBNR reserves inflation by assuming an inflation rate consistent with historical trends. The IBNR reserves are calculated as the ultimate amount of losses and loss expenses less cumulative paid losses and loss expenses and OSLR. The Company’s actuaries employ generally accepted actuarial methodologies to determine estimated ultimate loss reserves.

The Company believes that its current estimates of liabilities appropriately reflect its current knowledge of the business and the prevailing market, social, legal and economic conditions while giving due consideration to historical trends and volatility evidenced in the liabilities over the longer term. Although management believes that OSLR and the IBNR reserves are sufficient to cover losses assumed by the Company, there can be no assurance that losses will not deviate from the Company’s reserves, possibly by material amounts. The methodology of estimating loss reserves is periodically reviewed to ensure that the assumptions made continue to be appropriate. The Company recognizes any changes in its loss reserve estimates, including prior year loss reserve development, and the related reinsurance recoverables in the periods in which they are determined and are recorded in “net losses and loss expenses” in the consolidated income statements.

F-28

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

The reserve for losses and loss expenses consists of the following:

	December 31,
	2016		2015
Outstanding loss reserves	$	1,807.5	$	1,678.5
Reserves for losses incurred but not reported	4,831.7		4,777.7
Reserve for losses and loss expenses	$	6,639.2	$	6,456.2

b)Reserve for losses and loss expenses rollforward

The table below is a reconciliation of the beginning and ending liability for unpaid losses and loss expenses. Losses incurred and paid are reflected net of reinsurance recoverables.

	Year Ended December 31,
	2016			2015			2014
Gross liability at beginning of year	$	6,456.2		$	5,881.2		$	5,766.5
Reinsurance recoverable at beginning of year	(1,480.0		)	(1,340.3		)	(1,234.5		)
Net liability at beginning of year	4,976.2			4,540.9			4,532.0
Acquisition of net reserves for losses and loss expenses	—			259.3			—
Net losses incurred related to:
Current year	1,600.1			1,667.9			1,411.8
Prior years	(98.3		)	(81.6		)	(212.6		)
Total incurred	1,501.8			1,586.3			1,199.2
Net paid losses related to:
Current year	208.4			186.0			171.8
Prior years	1,238.6			1,201.6			1,001.5
Total paid	1,447.0			1,387.6			1,173.3
Foreign exchange revaluation and other	(16.8		)	(22.7		)	(17.0		)
Net liability at end of year	5,014.2			4,976.2			4,540.9
Reinsurance recoverable at end of year	1,625.0			1,480.0			1,340.3
Gross liability at end of year	$	6,639.2		$	6,456.2		$	5,881.2

The net reserve for losses and loss expenses acquired of $259.3 million represents the net reserves acquired from the Hong Kong and Singapore branches of RSA of $255.2 million and the net reserves from the Labuan branch of RSA of $4.1 million.

For the year ended December 31, 2016, the Company recorded net favorable prior year reserve development in each of its operating segments, primarily due to actual loss emergence being lower than initially expected. The net favorable prior year reserve development in the North American Insurance segment was primarily related to the professional liability line of business. The net favorable reserve development in the Global Markets Insurance segment was primarily related to the casualty and property lines of business, partially offset by unfavorable reserve development in the professional liability and other specialty lines of business. The net favorable prior year reserve development in the Reinsurance segment was primarily related to our property reinsurance and specialty reinsurance lines of business, partially offset by net unfavorable prior year reserve development in our casualty reinsurance line of business.

For the year ended December 31, 2015, the Company recognized net favorable prior year reserve development primarily due to lower than expected loss emergence in the Global Markets Insurance and Reinsurance segments and net unfavorable prior year reserve development in the North American Insurance segment. The net favorable reserve development in the Global Markets Insurance segment was primarily due to net favorable loss reserve development in the property, professional liability and casualty lines of business, partially offset by unfavorable prior year reserve development in the specialty and other line of business from the 2013 loss year. The net favorable reserve development in the Reinsurance segment was primarily related to the property and casualty reinsurance lines of business. The net unfavorable prior year reserve development for the North American Insurance segment primarily related to net unfavorable prior year development in the healthcare and casualty lines of

F-29

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

business mainly from the 2012 through 2014 loss years partially offset by favorable prior year reserve development in the professional liability, programs and property lines of business.

For the year ended December 31, 2014, the Company recognized net favorable reserve development in each of its operating segments due to actual loss emergence being lower than initially expected. The net favorable prior year reserve development in the North American Insurance segment primarily related to the 2006, 2007, 2009 and 2010 loss years, partially offset by unfavorable reserve development from the 2011 to 2013 loss years. The net favorable prior year reserve development in the Global Markets Insurance segment was primarily due to favorable reserve development for the 2008 to 2010 loss years. The net favorable reserve development in the Reinsurance segment was primarily due to benign global property catastrophe activity for the 2013 loss year.

The Company has not accrued any additional premiums or return premiums as a result of the net prior year reserve development during the years ended December 31, 2016, 2015 and 2014.

Although the Company has experienced favorable development in its insurance and reinsurance lines, there is no assurance that conditions and trends that have affected the development of liabilities in the past will continue. It is not appropriate to extrapolate future redundancies based on prior years’ development. The methodology of estimating loss reserves is periodically reviewed to ensure that the key assumptions used in the actuarial models continue to be appropriate.

c)Incurred and Paid Loss Development Triangles

The following information presents the incurred and paid claims information as of December 31, 2016, net of reinsurance, as well as cumulative claim frequency and total IBNR reserves by accident year. The information about incurred and paid claims development presented for the years ended December 31, 2010 to December 31, 2015 is presented as supplementary information.

The incurred and paid loss development triangles are presented based on the following:

·Disaggregated based on lines of business within each operating segment. There are a total of 17 incurred and paid loss development triangles presented. Of the 17 incurred and paid loss development triangles presented, six relate to the North American Insurance segment, eight relate to the Global Markets Insurance segment and three relate to the Reinsurance segment. The 17 incurred and paid loss development triangles were selected to create categories that were relatively homogeneous yet were not so small as to have insufficient actuarial credibility, and are consistent with how the Company discloses gross premiums written and net premiums earned by line of business, as well as disaggregated to reflect the reserves acquired from the Hong Kong, Singapore and Labuan branches of RSA in 2015 on a prospective basis. The Company has lines of business that are 100% ceded that are not presented in the incurred and paid loss development triangles.

·All incurred and paid loss development triangles are presented net of reinsurance.

·All incurred and paid loss development triangles exclude unallocated loss adjustment expenses, allowance for uncollectible reinsurance recoverables, currency translation adjustments and fair value adjustments related to acquired reserves as those balances are not estimated for each accident year.

·The incurred and paid loss development triangles include seven years of historical information. The Company has determined that it is impractical to provide incurred and paid loss development information at this disaggregated basis prior to accident year 2010 as all the necessary data prior to 2010 was not maintained at this disaggregated level.

·Reserves for losses and loss expenses and paid losses that are not recorded in the United States dollar functional currency are revalued at the United States dollar conversion rate at the end of the period.

·Acquisitions will be presented in the incurred and paid loss development triangles based on how the acquired reserves impact the nature, amount, timing and uncertainty of the cash flows related the settlement of the reserve for losses and loss expenses. As it relates to the reserves for losses and loss expenses acquired from RSA, those reserves are presented from the date in which they were acquired (April 1, 2015) as separate incurred and paid loss development triangles until such time when it is appropriate to combine with the equivalent Global Markets Insurance incurred and paid loss development triangles. The Company has made changes to how reserves are settled and estimated, and therefore the incurred and paid development information prior to the acquisition will no longer provide relevant information regarding the nature, amount, timing and uncertainty of how these reserves will settle in the future. Also, the Company does not have sufficient information at this disaggregated level to present the Global Markets Insurance incurred and

F-30

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

paid loss development triangles on a retrospective basis, including the incurred and paid information from the acquired RSA reserves.

·The ‘Total IBNR’ by accident year disclosed with the incurred and paid loss development triangles includes (1) IBNR reserves for unreported events and (2) changes in the values of claims that have been reported but are not yet settled.

·Cumulative reported claims included in the tables below, which are reflected as the actual claim counts shown, consist of any reported indemnity claim by claimant (i.e., insured) as of December 31, 2016 with a reserve balance greater than one United States dollar (or equivalent foreign currency). By including only indemnity claims with reserves greater than one United States dollar (or equivalent foreign currency), the tables do not include any notifications of claims which may or may not result in an indemnity claim. The cumulative claim count information for the acquired RSA operations are higher, on a relative basis, than the other lines of business cumulative claim count information as the acquired RSA operations have a higher percentage of retail business. This will result in reporting, on average, higher frequency of reported claims with lower severity per claim. The Company has determined that it is impractical to provide cumulative reported claim information for the lines of business in the Reinsurance segment as this information is not provided to the Company from the cedents. The Company also does not believe cumulated reported claim counts for its Reinsurance segment provides any meaningful information related to the nature, amount, timing and uncertainty of the cash flows related to the settled of the reserve for losses and loss expenses.

North American Insurance Segment

Casualty

Incurred Claims and Loss Adjustment Expenses, Net of Reinsurance

															As of December 31, 2016
Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016		Total IBNR		Cumulative Reported Claims
2010	$	133.8	$	156.8	$	158.4	$	151.5	$	149.3	$	143.5	$	127.3	$	23.6	277
2011			120.7		140.7		145.1		143.0		136.7		144.2		36.8		347
2012					144.4		147.9		150.7		166.3		188.5		42.7		388
2013							184.0		192.4		208.9		237.4		90.3		638
2014									220.2		222.4		232.4		94.7		763
2015											288.0		279.1		214.8		820
2016													268.4		244.3		614
													$	1,477.3

Cumulative Paid Claims and Loss Adjustment Expenses, Net of Reinsurance

Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016
2010	$	0.6	$	28.4	$	65.9	$	72.8	$	83.0	$	87.4	$	96.8
2011			2.1		11.2		32.8		53.0		79.0		91.8
2012					6.5		25.9		53.2		85.4		114.0
2013							9.7		38.6		70.2		103.6
2014									8.5		58.3		103.9
2015											11.0		34.2
2016													10.0
													$	554.4
	All outstanding liabilities before 2010, net of reinsurance												$	157.0
	Liability for losses and loss expenses, net of reinsurance												$	1,079.9

F-31

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Professional liability

Incurred Claims and Loss Adjustment Expenses, Net of Reinsurance

															As of December 31, 2016
Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016		Total IBNR		Cumulative Reported Claims
2010	$	189.4	$	196.5	$	190.5	$	178.0	$	169.3	$	154.8	$	152.3	$	23.1	334
2011			182.5		206.4		228.7		235.4		214.4		210.7		24.4		474
2012					193.5		266.2		274.0		271.1		265.6		46.9		530
2013							220.9		226.8		225.8		240.4		77.3		534
2014									213.0		233.7		235.7		79.2		378
2015											254.2		258.9		165.7		269
2016													256.0		234.1		127
													$	1,619.5

Cumulative Paid Claims and Loss Adjustment Expenses, Net of Reinsurance

Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016
2010	$	7.9	$	36.5	$	57.0	$	78.1	$	91.3	$	97.5	$	118.2
2011			13.6		56.1		102.6		124.7		152.7		179.5
2012					15.8		62.5		98.0		146.5		181.1
2013							9.6		50.0		95.8		142.8
2014									11.7		69.8		125.6
2015											9.0		61.0
2016													9.5
													$	817.6
	All outstanding liabilities before 2010, net of reinsurance												$	89.7
	Liability for losses and loss expenses, net of reinsurance												$	891.6

F-32

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Property

Incurred Claims and Loss Adjustment Expenses, Net of Reinsurance

															As of December 31, 2016
Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016		Total IBNR			Cumulative Reported Claims
2010	$	66.9	$	54.0	$	49.6	$	47.7	$	48.6	$	48.8	$	48.8	$	0.7		330
2011			124.3		121.8		115.0		111.4		110.2		107.9		(0.1		)	448
2012					157.7		146.9		140.5		136.9		136.3		0.3			599
2013							81.6		75.3		69.8		68.9		0.1			923
2014									97.0		96.0		88.9		0.3			1,344
2015											110.7		114.4		3.3			1,448
2016													101.3		11.8			1,502
													$	666.4

Cumulative Paid Claims and Loss Adjustment Expenses, Net of Reinsurance

Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016
2010	$	16.4	$	34.2	$	40.9	$	45.7	$	47.4	$	47.9	$	48.1
2011			24.6		69.8		98.6		106.2		107.4		108.1
2012					20.5		98.0		127.8		134.7		135.0
2013							25.4		56.3		64.6		67.8
2014									32.3		73.1		83.8
2015											51.6		98.5
2016													46.7
													$	587.9
	All outstanding liabilities before 2010, net of reinsurance												$	0.5
	Liability for losses and loss expenses, net of reinsurance												$	79.0

F-33

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Programs

Incurred Claims and Loss Adjustment Expenses, Net of Reinsurance

															As of December 31, 2016
Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016		Total IBNR		Cumulative Reported Claims
2010	$	70.7	$	72.5	$	86.4	$	80.8	$	78.8	$	75.5	$	75.0	$	2.6	479
2011			54.0		61.9		62.6		58.1		52.5		53.5		4.4		446
2012					56.7		60.5		62.4		59.6		58.9		5.7		496
2013							64.9		62.0		59.7		56.2		14.5		871
2014									74.9		73.9		70.0		28.8		1,201
2015											86.8		86.2		43.5		1,266
2016													113.6		72.3		1,281
													$	513.4

Cumulative Paid Claims and Loss Adjustment Expenses, Net of Reinsurance

Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016
2010	$	2.9	$	17.9	$	42.4	$	52.3	$	59.9	$	63.4	$	66.3
2011			3.8		15.2		26.7		34.7		41.3		45.3
2012					3.8		17.6		29.6		38.3		44.5
2013							5.7		15.8		24.4		33.0
2014									6.4		16.9		27.5
2015											9.3		26.3
2016													14.1
													$	257.0
	All outstanding liabilities before 2010, net of reinsurance												$	9.4
	Liability for losses and loss expenses, net of reinsurance												$	265.8

F-34

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Healthcare

Incurred Claims and Loss Adjustment Expenses, Net of Reinsurance

															As of December 31, 2016
Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016		Total IBNR		Cumulative Reported Claims
2010	$	78.5	$	76.4	$	79.3	$	79.8	$	64.2	$	63.4	$	62.8	$	6.8	156
2011			85.9		87.1		94.5		108.1		113.6		113.3		4.5		248
2012					87.9		91.4		99.4		113.7		113.7		8.5		260
2013							85.4		111.2		123.9		123.9		18.8		227
2014									84.4		92.5		92.5		46.4		150
2015											76.8		76.8		58.0		85
2016													51.1		47.6		17
													$	634.1

Cumulative Paid Claims and Loss Adjustment Expenses, Net of Reinsurance

Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016
2010	$	1.2	$	6.4	$	17.1	$	28.9	$	39.8	$	48.5	$	51.9
2011			0.5		10.9		42.5		69.6		84.0		99.9
2012					1.3		15.1		34.3		54.8		77.5
2013							2.6		12.6		56.9		84.6
2014									1.0		9.0		26.5
2015											0.6		8.5
2016													0.9
													$	349.7
	All outstanding liabilities before 2010, net of reinsurance												$	16.8
	Liability for losses and loss expenses, net of reinsurance												$	301.2

F-35

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Other specialty

Incurred Claims and Loss Adjustment Expenses, Net of Reinsurance

															As of December 31, 2016
Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016		Total IBNR		Cumulative Reported Claims
2010	$	0.9	$	0.9	$	0.9	$	0.6	$	0.5	$	0.3	$	0.4	$	—	9
2011			16.5		18.9		18.3		18.7		18.7		18.7		0.7		16
2012					21.2		21.2		22.5		21.3		21.2		2.3		19
2013							16.6		16.6		16.6		16.6		10.6		73
2014									30.6		33.6		34.3		12.1		331
2015											47.4		48.2		30.6		352
2016													70.1		62.4		520
													$	209.6

Cumulative Paid Claims and Loss Adjustment Expenses, Net of Reinsurance

Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016
2010	$	—	$	—	$	—	$	0.1	$	0.1	$	0.1	$	0.4
2011			4.0		11.2		14.5		15.1		15.9		16.7
2012					0.5		10.2		14.7		17.5		17.9
2013							0.8		2.3		3.2		4.4
2014									5.2		13.0		18.6
2015											4.1		13.4
2016													4.2
													$	75.6
	All outstanding liabilities before 2010, net of reinsurance												$	—
	Liability for losses and loss expenses, net of reinsurance												$	134.0

F-36

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Global Markets Insurance Segment:

Casualty - Excluding RSA acquired reserves

Incurred Claims and Loss Adjustment Expenses, Net of Reinsurance

															As of December 31, 2016
Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016		Total IBNR		Cumulative Reported Claims
2010	$	14.2	$	14.2	$	14.2	$	13.9	$	10.3	$	5.8	$	4.2	$	4.1	1
2011			9.8		9.6		15.4		16.5		15.8		15.5		5.4		10
2012					11.0		11.6		11.3		10.5		7.6		5.8		16
2013							9.3		9.3		8.1		7.3		6.5		25
2014									9.0		11.8		11.9		6.0		66
2015											16.6		19.5		6.5		111
2016													15.9		11.4		233
													$	81.9

Cumulative Paid Claims and Loss Adjustment Expenses, Net of Reinsurance

Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016
2010	$	—	$	—	$	—	$	0.1	$	0.1	$	0.1	$	0.1
2011			—		0.2		0.3		10.1		10.1		10.1
2012					—		0.6		0.9		1.0		1.6
2013							—		0.4		0.4		0.4
2014									0.4		0.7		1.1
2015											1.1		4.0
2016													0.4
													$	17.7
	All outstanding liabilities before 2010, net of reinsurance												$	24.1
	Liability for losses and loss expenses, net of reinsurance												$	88.3

F-37

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Casualty - RSA acquired reserves

Incurred Claims and Loss Adjustment Expenses, Net of Reinsurance

															As of December 31, 2016
Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016		Total IBNR		Cumulative Reported Claims
2010	$	—	$	—	$	—	$	—	$	—	$	3.2	$	2.7	$	0.5	130
2011			—		—		—		—		7.2		6.2		0.1		337
2012					—		—		—		19.3		17.9		0.4		496
2013							—		—		53.6		43.2		3.1		1,302
2014									—		99.2		68.7		5.4		3,618
2015											98.3		78.0		15.4		9,095
2016													60.9		22.0		8,506
													$	277.6

Cumulative Paid Claims and Loss Adjustment Expenses, Net of Reinsurance

Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016
2010	$	—	$	—	$	—	$	—	$	—	$	1.0	$	1.5
2011			—		—		—		—		2.7		4.7
2012					—		—		—		8.2		14.2
2013							—		—		13.2		28.2
2014									—		16.6		37.1
2015											12.0		31.1
2016													13.4
													$	130.1
	All outstanding liabilities before 2010, net of reinsurance												$	1.1
	Liability for losses and loss expenses, net of reinsurance												$	148.6

F-38

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Professional liability - Excluding RSA acquired reserves

Incurred Claims and Loss Adjustment Expenses, Net of Reinsurance

															As of December 31, 2016
Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016		Total IBNR		Cumulative Reported Claims
2010	$	32.6	$	32.6	$	32.5	$	30.3	$	20.0	$	13.8	$	14.7	$	5.7	15
2011			32.4		29.8		27.8		24.3		20.7		19.2		7.3		21
2012					32.4		30.7		37.9		39.2		37.3		10.7		34
2013							33.9		33.4		30.4		28.5		20.0		92
2014									39.6		39.2		40.5		29.4		125
2015											57.3		60.3		48.9		147
2016													53.5		48.9		150
													$	254.0

Cumulative Paid Claims and Loss Adjustment Expenses, Net of Reinsurance

Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016
2010	$	—	$	—	$	0.1	$	0.5	$	2.6	$	3.1	$	8.6
2011			0.1		0.5		6.7		8.4		8.6		8.6
2012					0.2		1.6		10.5		13.6		21.3
2013							0.1		0.9		2.4		3.5
2014									0.5		2.6		4.8
2015											1.3		5.4
2016													1.9
													$	54.3
	All outstanding liabilities before 2010, net of reinsurance												$	46.5
	Liability for losses and loss expenses, net of reinsurance												$	246.2

F-39

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Professional liability - RSA acquired reserves

Incurred Claims and Loss Adjustment Expenses, Net of Reinsurance

															As of December 31, 2016
Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016		Total IBNR		Cumulative Reported Claims
2010	$	—	$	—	$	—	$	—	$	—	$	0.8	$	0.9	$	0.1	11
2011			—		—		—		—		1.5		1.0		—		12
2012					—		—		—		0.4		0.2		—		9
2013							—		—		0.8		1.9		0.2		25
2014									—		2.1		1.5		0.3		48
2015											3.2		2.6		1.8		74
2016													1.0		1.0		32
													$	9.1

Cumulative Paid Claims and Loss Adjustment Expenses, Net of Reinsurance

Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016
2010	$	—	$	—	$	—	$	—	$	—	$	0.6	$	0.7
2011			—		—		—		—		—		0.5
2012					—		—		—		0.1		0.1
2013							—		—		0.2		0.4
2014									—		0.2		0.3
2015											—		0.1
2016													0.1
													$	2.3
	All outstanding liabilities before 2010, net of reinsurance												$	—
	Liability for losses and loss expenses, net of reinsurance												$	6.8

F-40

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Property - Excluding RSA acquired reserves

Incurred Claims and Loss Adjustment Expenses, Net of Reinsurance

															As of December 31, 2016
Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016		Total IBNR		Cumulative Reported Claims
2010	$	87.9	$	102.3	$	97.5	$	96.6	$	95.7	$	96.5	$	93.6	$	0.1	249
2011			66.2		64.2		58.5		54.6		54.5		54.9		0.2		214
2012					25.2		21.9		18.6		17.3		18.2		0.8		161
2013							26.0		18.6		14.4		14.4		0.2		108
2014									29.0		23.3		21.1		0.6		164
2015											22.8		25.1		1.8		223
2016													29.3		12.3		282
													$	256.6

Cumulative Paid Claims and Loss Adjustment Expenses, Net of Reinsurance

Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016
2010	$	47.8	$	75.0	$	84.1	$	90.5	$	92.1	$	92.5	$	92.9
2011			10.6		28.4		43.3		52.2		52.8		53.6
2012					3.5		9.3		11.5		15.1		17.3
2013							4.0		9.0		12.5		12.9
2014									6.7		12.3		15.9
2015											3.7		15.4
2016													3.0
													$	211.1
	All outstanding liabilities before 2010, net of reinsurance												$	2.3
	Liability for losses and loss expenses, net of reinsurance												$	47.8

F-41

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Property - RSA acquired reserves

Incurred Claims and Loss Adjustment Expenses, Net of Reinsurance

															As of December 31, 2016
Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016		Total IBNR		Cumulative Reported Claims
2010	$	—	$	—	$	—	$	—	$	—	$	—	$	0.1	$	—	54
2011			—		—		—		—		0.9		0.5		—		122
2012					—		—		—		1.7		1.4		—		353
2013							—		—		4.2		4.5		—		758
2014									—		14.0		14.3		0.5		1,332
2015											22.1		12.0		0.6		1,988
2016													20.6		7.4		1,190
													$	53.3

Cumulative Paid Claims and Loss Adjustment Expenses, Net of Reinsurance

Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016
2010	$	—	$	—	$	—	$	—	$	—	$	0.1	$	—
2011			—		—		—		—		0.2		0.6
2012					—		—		—		0.5		1.3
2013							—		—		1.6		3.1
2014									—		6.4		9.7
2015											2.8		8.1
2016													1.9
													$	24.8
	All outstanding liabilities before 2010, net of reinsurance												$	(3.5	)
	Liability for losses and loss expenses, net of reinsurance												$	25.0

F-42

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Other specialty - Excluding RSA acquired reserves

Incurred Claims and Loss Adjustment Expenses, Net of Reinsurance

															As of December 31, 2016
Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016		Total IBNR		Cumulative Reported Claims
2010	$	0.1	$	0.1	$	0.1	$	0.1	$	—	$	—	$	—	$	—	—
2011			1.0		1.0		1.0		—		—		—		—		3
2012					4.3		4.3		1.7		1.6		1.7		—		5
2013							7.2		16.0		20.2		19.7		1.1		110
2014									31.9		41.4		52.1		3.2		750
2015											44.0		46.4		8.6		1,086
2016													55.1		19.1		1,049
													$	174.9

Cumulative Paid Claims and Loss Adjustment Expenses, Net of Reinsurance

Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016
2010	$	—	$	—	$	—	$	—	$	—	$	—	$	—
2011			—		—		—		—		—		—
2012					—		0.1		1.4		1.6		1.6
2013							0.2		4.8		16.6		18.4
2014									8.9		27.0		32.9
2015											12.7		29.3
2016													24.7
													$	107.0
	All outstanding liabilities before 2010, net of reinsurance												$	—
	Liability for losses and loss expenses, net of reinsurance												$	67.9

F-43

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Other specialty - RSA acquired reserves

Incurred Claims and Loss Adjustment Expenses, Net of Reinsurance

															As of December 31, 2016
Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016		Total IBNR			Cumulative Reported Claims
2010	$	—	$	—	$	—	$	—	$	—	$	1.1	$	1.1	$	—		115
2011			—		—		—		—		1.3		2.6		—			239
2012					—		—		—		2.4		2.6		(0.1		)	411
2013							—		—		7.0		7.0		0.2			857
2014									—		20.6		21.8		(0.9		)	2,808
2015											39.0		41.5		0.9			14,366
2016													31.3		7.9			15,908
													$	107.8

Cumulative Paid Claims and Loss Adjustment Expenses, Net of Reinsurance

Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016
2010	$	—	$	—	$	—	$	—	$	—	$	0.1	$	0.3
2011			—		—		—		—		0.3		0.8
2012					—		—		—		0.4		1.4
2013							—		—		2.1		3.2
2014									—		5.5		10.0
2015											7.2		19.1
2016													6.7
													$	41.5
	All outstanding liabilities before 2010, net of reinsurance												$	0.4
	Liability for losses and loss expenses, net of reinsurance												$	66.7

F-44

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Reinsurance Segment:

Property

Incurred Claims and Loss Adjustment Expenses, Net of Reinsurance

															As of December 31, 2016
Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016		Total IBNR		Cumulative Reported Claims
2010	$	80.3	$	78.7	$	73.0	$	68.6	$	68.0	$	67.9	$	67.0	$	0.6	n/a
2011			219.8		223.9		207.2		199.4		197.8		199.2		1.2		n/a
2012					190.9		143.0		131.2		126.9		124.5		3.1		n/a
2013							176.3		143.7		133.6		123.1		2.9		n/a
2014									196.5		165.0		152.8		5.2		n/a
2015											202.1		174.4		26.3		n/a
2016													180.4		74.4		n/a
													$	1,021.3

Cumulative Paid Claims and Loss Adjustment Expenses, Net of Reinsurance

Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016
2010	$	11.1	$	38.2	$	50.2	$	57.6	$	63.2	$	64.8	$	65.2
2011			53.4		116.6		162.9		182.1		190.5		193.9
2012					38.5		87.8		105.8		111.7		114.6
2013							29.7		84.8		110.6		115.7
2014									57.5		112.8		131.0
2015											53.9		104.2
2016													52.8
													$	777.5
	All outstanding liabilities before 2010, net of reinsurance												$	1.9
	Liability for losses and loss expenses, net of reinsurance												$	245.7

F-45

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Casualty

Incurred Claims and Loss Adjustment Expenses, Net of Reinsurance

															As of December 31, 2016
Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016		Total IBNR		Cumulative Reported Claims
2010	$	200.0	$	222.1	$	225.9	$	223.2	$	213.2	$	197.9	$	196.0	$	48.4	n/a
2011			165.2		184.6		189.4		192.7		185.6		180.5		51.8		n/a
2012					190.5		214.7		216.9		223.8		231.2		68.9		n/a
2013							177.4		192.5		198.6		214.9		92.8		n/a
2014									167.2		179.5		182.0		120.0		n/a
2015											159.2		157.5		123.6		n/a
2016													130.2		120.5		n/a
													$	1,292.3

Cumulative Paid Claims and Loss Adjustment Expenses, Net of Reinsurance

Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016
2010	$	2.6	$	32.2	$	58.6	$	76.3	$	97.9	$	114.5	$	126.8
2011			8.4		26.9		49.0		71.3		93.2		105.0
2012					12.6		39.2		57.3		92.5		127.5
2013							7.8		22.4		60.2		81.4
2014									1.7		12.5		31.0
2015											1.5		14.5
2016													1.8
													$	487.9
	All outstanding liabilities before 2010, net of reinsurance												$	225.9
	Liability for losses and loss expenses, net of reinsurance												$	1,030.3

F-46

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Specialty

Incurred Claims and Loss Adjustment Expenses, Net of Reinsurance

															As of December 31, 2016
Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016		Total IBNR		Cumulative Reported Claims
2010	$	11.3	$	7.7	$	9.0	$	8.8	$	8.6	$	8.3	$	8.1	$	0.4	n/a
2011			30.0		26.9		21.9		22.7		22.1		21.4		1.5		n/a
2012					123.1		132.0		138.3		137.2		136.5		4.5		n/a
2013							111.6		106.7		100.3		102.0		4.2		n/a
2014									121.0		124.8		118.4		6.2		n/a
2015											130.0		128.0		23.9		n/a
2016													118.4		101.6		n/a
													$	632.8

Cumulative Paid Claims and Loss Adjustment Expenses, Net of Reinsurance

Accident Year	Unaudited 2010		Unaudited 2011		Unaudited 2012		Unaudited 2013		Unaudited 2014		Unaudited 2015		2016
2010	$	2.1	$	4.1	$	6.1	$	6.5	$	7.0	$	7.1	$	7.3
2011			3.2		12.7		16.3		17.5		18.4		19.0
2012					24.5		108.0		121.8		125.5		127.9
2013							3.3		75.7		92.0		93.3
2014									14.8		102.8		107.7
2015											7.2		95.3
2016													9.8
													$	460.4
	All outstanding liabilities before 2010, net of reinsurance												$	3.3
	Liability for losses and loss expenses, net of reinsurance												$	175.7

d)    Reconciliation of incurred and paid loss development triangles to the reserve for losses and loss expenses

The following table reconciles the net reserve for losses and loss expenses derived from the incurred and paid loss development triangles to the reserve for losses and loss expenses in the consolidated balance sheet as of December 31, 2016

F-47

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

		December 31, 2016
Net reserve for losses and loss expenses per the loss development triangles:
North American Insurance:	Casualty	$	1,079.9
	Professional liability	891.6
	Property	79.0
	Programs	265.8
	Healthcare	301.2
	Other specialty	134.0
Global Markets Insurance:	Casualty	88.3
	Casualty - RSA acquired reserves	148.6
	Professional liability	246.2
	Professional liability - RSA acquired reserves	6.8
	Property	47.8
	Property - RSA acquired reserves	25.0
	Other specialty	67.9
	Other specialty - RSA acquired reserves	66.7
Reinsurance:	Property	245.7
	Casualty	1,030.3
	Specialty	175.7
Total net reserves for losses and loss expenses per the loss development triangles:		$	4,900.4
Reinsurance recoverable for each loss development triangle:
North American Insurance:	Casualty	$	605.9
	Professional liability	352.7
	Property	74.5
	Programs	83.8
	Healthcare	135.6
	Other Specialty	55.6
Global Markets Insurance:	Casualty	62.9
	Casualty - RSA acquired reserves	5.0
	Professional liability	111.9
	Professional liability - RSA acquired reserves	1.0
	Property	4.0
	Property - RSA acquired reserves	15.3
	Other specialty	30.7
	Other specialty - RSA acquired reserves	31.5
Reinsurance:	Property	3.8
	Casualty	—
	Specialty	—
Total reinsurance recoverables per the loss development triangles:		$	1,574.0
Total gross reserves for losses and loss expenses per the loss development triangles:		$	6,474.4
Other balances not included in the loss development triangles:
	Unallocated loss adjustment expenses	118.6
	Other reserves not included in the loss development triangles	43.6
	Fair value adjustment	6.0
	Currency translation adjustment	(3.0		)
	Other	(0.4		)
		164.8
Total gross reserves for losses and loss expenses		$	6,639.2

F-48

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

e)     Methods for estimating the reserve for losses and loss expenses, including IBNR reserves, and changes in methodologies

In general, the methods, and related assumptions, used for estimating the reserve for losses and loss expenses, including IBNR, are predicated on whether the line of business falls into one of the following two categories: short-tail line or long-tail line. In certain lines of business, claims are generally reported and paid within a relatively short period of time (“short-tail lines”) during and following the policy coverage period. This generally enables the Company to determine with greater certainty the estimate of ultimate losses and loss expenses. The estimate of reserves for short-tail lines of business relies primarily on traditional loss reserving methodologies, utilizing selected paid and reported loss development factors, which are further explained below. Short-tail lines of business in the North American Insurance segment include general property, energy and inland marine, all of which are included in the ‘property incurred and paid loss development triangle’. Short-tail lines of business in the Global Markets Insurance segment include general property which is included in the ‘property incurred and paid loss development triangle’ and aviation, accident and health, and marine, which are included in the ‘other specialty incurred and paid loss development triangle’. Short-tail lines of business in the Reinsurance segment include property reinsurance in the ‘property incurred and paid loss development triangle’, and crop and marine, which are included in the ‘specialty incurred and paid loss development triangle’.

The casualty insurance and casualty reinsurance lines of business include general liability risks, healthcare, programs, professional liability and other specialty risks, such as environmental and construction risks. For most of the Company’s lines of business, claims may be reported or settled several years after the coverage period has terminated (“long-tail lines”), which increases uncertainties of the reserve estimates in such lines. In addition, the attachment points for these long-tail lines can be relatively high, making reserving for these lines of business more difficult than short-tail lines due to having to estimate whether the severity of the estimated losses will exceed the attachment point. The Company establishes a case reserve when sufficient information is gathered to make a reasonable estimate of the liability, which often requires a significant amount of information and time. Due to the lengthy reporting pattern of these casualty lines, reliance is placed on industry benchmarks supplemented by the Company’s own experience. For expected loss ratio selections, the Company considers its existing experience supplemented with analysis of loss trends, rate changes and experience of peer companies. Long-tail lines of business in the North American Insurance segment are included in the ‘casualty incurred and paid loss development triangle’, ‘professional liability incurred and paid loss development triangle, ‘programs incurred and paid loss development triangle’, ‘healthcare incurred and paid loss development triangle, and ‘other specialty incurred and paid loss development triangle’. Long-tail lines of business in the Global Markets Insurance segment include general casualty in the ‘casualty incurred and paid loss development triangle’, professional liability risks in the ‘professional liability incurred and paid loss development triangle’. Long-tail lines of business in the Reinsurance segment include casualty reinsurance in the ‘casualty incurred and paid loss development triangle’.

In the Reinsurance segment, reinsurance contracts are reviewed individually, based upon individual characteristics and loss experience emergence. Loss reserves on assumed reinsurance often have unique features that make them more difficult to estimate than direct insurance. The Company establishes loss reserves upon receipt of advice from a cedent that a reserve is merited. The Company’s claims staff may establish additional loss reserves where, in their judgment, the amount reported by a cedent is potentially inadequate. The following are the most significant features that make estimating loss reserves on assumed reinsurance difficult:

·Reinsurers have to rely upon the cedents and reinsurance intermediaries to report losses in a timely fashion.

·Reinsurers must rely upon cedents to price the underlying business appropriately.

·Reinsurers have less predictable loss emergence patterns than direct insurers, particularly when writing excess-of-loss reinsurance.

For excess-of-loss reinsurance, cedents generally are required to report losses that either exceed 50% of the retention, have a reasonable probability of exceeding the retention or meet serious injury reporting criteria. For quota share reinsurance treaties, cedents are required to give a periodic statement of account, generally monthly or quarterly. These periodic statements typically include information regarding written premiums, earned premiums, unearned premiums, ceding commissions, brokerage amounts, applicable taxes, paid losses and outstanding losses. They can be submitted 60 to 90 days after the close of the reporting period. Some quota share reinsurance treaties have specific language regarding earlier notice of serious claims.

Reinsurance generally has a greater time lag than direct insurance in the reporting of claims. The time lag is caused by the claim first being reported to the cedent, then the intermediary (such as a broker) and finally the reinsurer. This lag can be up to

F-49

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

six months or longer in certain cases. There is also a time lag because the insurer may not be required to report claims to the reinsurer until certain reporting criteria are met. In some instances this could be several years while a claim is being litigated. The Company uses reporting factors based on data from the Reinsurance Association of America to adjust for time lags. The Company also uses historical treaty-specific reporting factors when applicable. Loss and premium information are entered into the reinsurance system by the Company’s claims and accounting departments on a timely basis.

The expected loss ratios that is assigned to each treaty are based upon analysis and modeling performed by a team of pricing actuaries. The historical data reviewed by the team of pricing actuaries is considered in setting the reserves for each cedent. The historical data in the submissions is matched against the carried reserves for the historical treaty years.

Loss reserves do not represent an exact calculation of liability. Rather, loss reserves are estimates of what the Company expects the ultimate resolution and administration of claims will cost. These estimates are based on actuarial and statistical projections and on an assessment of currently available data, as well as estimates of future trends in claims severity and frequency, judicial theories of liability and other factors. Loss reserve estimates are refined as experience develops and as claims are reported and resolved. In addition, the relatively long periods between when a loss occurs and when it may be reported to the Company’s claims department for the casualty insurance and casualty reinsurance lines of business increase the uncertainties of our reserve estimates in such lines.

The Company utilizes a variety of standard actuarial methods in its analysis. The selections from these various methods are based on the loss development characteristics of the specific line of business. For lines of business with long reporting periods such as casualty reinsurance, the Company may rely more on an expected loss ratio method (as described below) until losses begin to develop. For lines of business with short reporting periods such as property insurance, the Company may rely more on a paid loss development method (as described below) as losses are reported relatively quickly. The actuarial methods utilized by the Company include:

Paid Loss Development Method.  Ultimate losses are estimated by calculating past paid loss development factors and applying them to exposure periods with further expected paid loss development. The paid loss development method assumes that losses are paid at a consistent rate. The paid loss development method provides an objective test of reported loss projections because paid losses contain no reserve estimates. In some circumstances, paid losses for recent periods may be too varied for accurate predictions. For many coverages, especially casualty coverages, claim payments are made slowly and it may take years for claims to be fully reported and settled. These payments may be unreliable for determining future loss projections because of shifts in settlement patterns or because of large settlements in the early stages of development. Choosing an appropriate “tail factor” to determine the amount of payments from the latest development period to the ultimate development period may also require considerable judgment, especially for coverages that have long payment patterns. When necessary, the Company has had to supplement paid loss development patterns with appropriate benchmarks.

Reported Loss Development Method.  Ultimate losses are estimated by calculating past reported loss development factors and applying them to exposure periods with further expected reported loss development. Since reported losses include payments and case reserves, changes in both of these amounts are incorporated in this method. This approach provides a larger volume of data to estimate ultimate losses than the paid loss development method. Thus, reported loss patterns may be less varied than paid loss patterns, especially for coverages that have historically been paid out over a long period of time but for which claims are reported relatively early and have case loss reserve estimates established. This method assumes that reserves have been established using consistent practices over the historical period that is reviewed. Changes in claims handling procedures, large claims or significant numbers of claims of an unusual nature may cause results to be too varied for accurate forecasting. Also, choosing an appropriate “tail factor” to determine the change in reported loss from the latest development period to the ultimate development period may require considerable judgment. When necessary, the Company has had to supplement reported loss development patterns with appropriate benchmarks.

Expected Loss Ratio Method.  To estimate ultimate losses under the expected loss ratio method, earned premium is multiplied by an expected loss ratio. The expected loss ratio is selected utilizing industry data, historical company data and professional judgment. This method is particularly useful for new lines of business where there are no historical losses or where past loss experience is not credible.

Bornhuetter-Ferguson Paid Loss Method.  The Bornhuetter-Ferguson paid loss method is a combination of the paid loss development method and the expected loss ratio method. The amount of losses yet to be paid is based upon the expected loss ratios and the expected percentage of losses unpaid. These expected loss ratios are modified to the extent paid losses to date

F-50

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

differ from what would have been expected to have been paid based upon the selected paid loss development pattern. This method avoids some of the distortions that could result from a large development factor being applied to a small base of paid losses to calculate ultimate losses. This method will react slowly if actual loss ratios develop differently because of major changes in rate levels, retentions or deductibles, the forms and conditions of reinsurance coverage, the types of risks covered or a variety of other changes.

Bornhuetter-Ferguson Reported Loss Method.  The Bornhuetter-Ferguson reported loss method is similar to the Bornhuetter-Ferguson paid loss method with the exception that it uses reported losses and reported loss development factors.

During 2016, 2015 and 2014, the Company adjusted its reliance on actuarial methods utilized for certain casualty lines of business and accident or treaty years within each of the operating segments shifting from the expected loss ratio method to the Bornhuetter-Ferguson reported loss method to varying degrees depending on the class of business, for example excess casualty versus primary casualty, and how old the accident or treaty year is. Placing greater reliance on more responsive actuarial methods for certain casualty lines of business and accident or treaty years within each of the Company’s operating segments is a natural progression that allows further refinement to the estimate of the reserve for losses and loss expenses. The Company believes utilizing only the Bornhuetter-Ferguson reported loss method for certain older accident and treaty years will more accurately reflect the reported loss activity thus far in our ultimate loss ratio selections, and will better reflect how the ultimate losses will develop over time. The Company will continue to utilize the expected loss ratio method for the most recent accident and treaty years until we have sufficient experience to utilize other acceptable actuarial methodologies. For the years ended December 31, 2016, 2015 and 2014, the Company recorded a decrease in losses and loss expenses of $20.1 million, $92.6 million and $159.7 million, respectively, as a result of shifting from the expected loss ratio method to the Bornhuetter-Ferguson method for older accident and treaty years.

We will continue to evaluate and monitor the development of these losses and the impact it has on our current and future assumptions. We believe recognition of the reserve changes in the period they were recorded was appropriate since a pattern of reported losses had not emerged and the loss years were previously too immature to deviate from the expected loss ratio method in prior periods.

f)     Average historical claims duration

The following is supplementary information about average historical claims duration for lines of business within each operating segment as of December 31, 2016, except for the average historical claims duration related to the reserve for losses and loss expenses acquired from RSA. It is impractical to provide the average historical claims duration information for the RSA acquisition, as the Company does not have sufficient information at this disaggregated level. Providing the average historical claims duration for the acquired RSA reserves for losses and loss expenses since acquisition does not provide meaningful information regarding the trends and uncertainties of this business as there is not sufficient historical information, and as such it has not been provided in the table below. The tables below present the average annual payout of incurred claims by age, net of reinsurance. This information provides an estimate of the average length of time it takes for losses to be incurred. As discussed above, short-tail lines will have average historical claim durations that occur over the first several years, whereas long-tail lines will have claim durations that extend over many years. The averages calculated below are simple averages based on the ratio of net paid losses in a given accident year to the most recent incurred losses for that same accident year. As such, the averages noted below may overstate or understate the actual claims duration. For example, smaller lines of business that recently started writing insurance policies could have abnormally high average claim duration percentages compared to more mature lines of business.

F-51

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Years	1		2		3		4		5		6		7
North American Insurance
Casualty	3	%	13	%	18	%	13	%	14	%	6	%	7	%
Professional liability	5	%	20	%	18	%	16	%	12	%	8	%	14	%
Property	34	%	44	%	17	%	7	%	2	%	1	%	—	%
Programs	9	%	20	%	21	%	15	%	11	%	6	%	4	%
Healthcare	1	%	9	%	23	%	21	%	17	%	14	%	5	%
Other specialty	8	%	23	%	13	%	9	%	3	%	3	%	66	%
Global Markets Insurance - excluding the RSA acquired reserves
Casualty	2	%	5	%	2	%	16	%	3	%	—	%	—	%
Professional liability	1	%	4	%	13	%	6	%	12	%	2	%	38	%
Property	25	%	34	%	18	%	11	%	5	%	1	%	—	%
Other specialty	18	%	23	%	37	%	7	%	—	%	—	%	—	%
Reinsurance
Property	28	%	37	%	18	%	7	%	5	%	2	%	1	%
Casualty	3	%	10	%	12	%	12	%	13	%	7	%	6	%
Specialty	13	%	57	%	14	%	4	%	4	%	2	%	3	%

8.CEDED REINSURANCE

The Company purchases reinsurance from third-party reinsurance companies to reduce its net exposure to losses. Reinsurance provides for recovery of a portion of gross losses and loss expenses from these reinsurers. The Company remains liable to the extent that its reinsurers do not meet their obligations under the related reinsurance contracts. The Company therefore regularly evaluates the financial condition of its reinsurers and monitors concentration of credit risk. The Company believes that as of December 31, 2016, its reinsurers are able to meet, and will meet, all of their obligations under the agreements. The provision for unrecoverable reinsurance was $1.2 million as of December 31, 2016 and 2015. The amount of reinsurance recoverable is as follows:

	2016		2015
OSLR recoverable	$	384.1	$	254.6
IBNR recoverable	1,240.9		1,225.4
Reinsurance recoverable	$	1,625.0	$	1,480.0
Reinsurance recoverable on paid losses	$	104.4	$	96.4

F-52

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Direct, assumed and ceded premiums written and earned and losses and loss expenses incurred are as follows:

	Premiums Written			Premiums Earned			Losses and Loss Expenses
Year Ended December 31, 2016
Direct	$	2,359.6		$	2,316.6		$	1,539.2
Assumed	706.2			743.1			379.4
Ceded	(810.0		)	(715.6		)	(416.8		)
	$	2,255.8		$	2,344.1		$	1,501.8
Year Ended December 31, 2015
Direct	$	2,291.6		$	2,255.3		$	1,471.6
Assumed	801.4			863.6			442.8
Ceded	(645.0		)	(630.5		)	(328.1		)
	$	2,448.0		$	2,488.4		$	1,586.3
Year Ended December 31, 2014
Direct	$	1,996.8		$	1,835.1		$	1,031.3
Assumed	938.6			941.2			464.7
Ceded	(613.4		)	(593.6		)	(296.8		)
	$	2,322.0		$	2,182.7		$	1,199.2

Of the premiums ceded during the years ended December 31, 2016, 2015 and 2014, approximately 44.4%, 41.1% and 42.3%, respectively, were ceded to four reinsurers.

The Company actively manages its reinsurance exposures by generally selecting reinsurers having a credit rating of “A-” or higher and monitoring the overall credit quality of its reinsurers to ensure the recoverables will be collected.

	December 31, 2016
	A.M. Best Rating	Reinsurance Recoverable		Percentage of Total		Prepaid Reinsurance(1)		Percentage of Total
Munich Re	A+	$	348.1	21.4	%	$	87.5	18.0	%
Axis Capital	A+	160.4		9.9	%	58.5		12.0	%
Swiss Re	A+	146.7		9.0	%	64.2		13.2	%
Markel	A	103.0		6.3	%	25.9		5.3	%
Arch Re	A+	100.5		6.2	%	14.0		2.9	%
Top five reinsurers		858.7		52.8	%	250.1		51.4	%
Other reinsurers’ balances		766.3		47.2	%	236.3		48.6	%
Total reinsurance recoverable		$	1,625.0	100.0	%	$	486.4	100.0	%

	December 31, 2015
	A.M. Best Rating	Reinsurance Recoverable		Percentage of Total		Prepaid Reinsurance(1)		Percentage of Total
Munich Re	A+	$	307.9	20.8	%	$	61.7	15.7	%
Axis Capital	A+	150.8		10.2	%	32.2		8.2	%
Arch Re	A+	115.3		7.8	%	16.0		4.1	%
Swiss Re	A+	103.9		7.0	%	57.3		14.6	%
RenaissanceRe	A+	94.0		6.4	%	8.0		2.0	%
Top five reinsurers		771.9		52.2	%	175.2		44.6	%
Other reinsurers’ balances		708.1		47.8	%	217.1		55.4	%
Total reinsurance recoverable		$	1,480.0	100.0	%	$	392.3	100.0	%

(1)Prepaid reinsurance represents unearned premiums ceded to reinsurance companies.

F-53

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Approximately 99% of ceded reserves were recoverable from reinsurers who had an A.M. Best rating of “A” or higher as of December 31, 2016 and 2015.

9.FUNDS HELD

The Company has also entered into a collateralized property catastrophe quota share reinsurance contract with Aeolus Re, Ltd., a Bermuda-based property catastrophe reinsurer (“Aeolus Re”), whereby the Company assumes property catastrophe business underwritten by Aeolus Re. The Company provided a multi-year capital commitment to support the business being underwritten by Aeolus Re. To the extent that capital is not utilized to support the business being underwritten by Aeolus Re, as all obligations have been settled, the capital is returned to the Company. To the extent the losses are in excess of the premiums written, the capital is utilized to pay the claims. The capital commitment is recorded in “funds held” on the consolidated balance sheets. The funds held balance as of December 31, 2016 and 2015 was $442.0 million and $622.4 million, respectively. For the years ended December 31, 2016, 2015 and 2014, the premiums written assumed by the Company through the collateralized property catastrophe quota share reinsurance contract with Aeolus Re were $38.2 million, $76.3 million and $87.3 million, respectively.

10.GOODWILL AND INTANGIBLE ASSETS

The following table shows the Company’s goodwill and intangible assets at December 31, 2016 and 2015:

	Goodwill			Indefinite-Lived Intangible Assets		Finite-Lived Intangible Assets
	Net Carrying Value			Net Carrying Value		Gross Carrying Value			Accumulated Amortization			Net Carrying Value
Balance at December 31, 2014	$	278.3		$	23.9	$	41.3		$	(18.9	)	$	22.4
Additions	110.1			—		83.5			—			83.5
Impairments	—			—		(1.4		)	—			(1.4		)
Amortization of intangible assets	—			—		—			(8.3		)	(8.3		)
Foreign currency translation adjustment	(0.3		)	—		(3.5		)	—			(3.5		)
Balance at December 31, 2015	388.1			23.9		119.9			(27.2		)	92.7
Additions	2.7			—		—			—			—
Impairments	—			—		(0.9		)	—			(0.9		)
Amortization of intangible assets	—			—		—			(9.8		)	(9.8		)
Foreign currency translation adjustment	(1.1		)	—		(1.2		)	—			(1.2		)
Balance at December 31, 2016	$	389.7		$	23.9	$	117.8		$	(37.0	)	$	80.8

The additions to goodwill and finite-lived intangible assets during the year ended December 31, 2015 related to the acquisitions of the Hong Kong, Singapore and Labuan branches of RSA and the acquisition of LAU. The goodwill and finite-lived intangible assets related to these acquisitions have been allocated to the Global Markets Insurance segment.

The additions to goodwill during the year ended December 31, 2016 related to the Company acquisition of the remaining interest in an insurance agency operation it did not own. The goodwill related to this acquisition has been allocated to the European direct insurance operations of the Global Markets Insurance segment.

The impairment to the finite-lived intangible assets during the years ended December 31, 2016 and 2015 related to the customer renewal intangibles from the acquisition of LAU. The trade credit business that is underwritten by LAU has underperformed over the past several years due to increased frequency of reported losses and as a result the customer renewal intangible asset was impaired by $0.9 million and $1.4 million during the years ended December 31, 2016 and 2015, respectively. The impairments were recorded in “amortization and impairment of intangible assets” in the consolidated income statements. As a result of these impairments recorded, the customer renewal intangible asset, related to the LAU acquisition, has a zero net carrying value as of December 31, 2016.

As of December 31, 2016, goodwill of $274.3 million, $111.5 million and $3.9 million was allocated to the North American Insurance segment, Global Markets Insurance segment and Reinsurance segment, respectively. The impairment

F-54

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

reviews for goodwill and indefinite-lived intangibles did not result in the recognition of impairment losses for the years ended December 31, 2016, 2015 and 2014. The net carrying value of the goodwill is net of accumulated impairment charges of $0.2 million that occurred prior to December 31, 2014.

As of December 31, 2016, the net carrying value of the finite-lived intangible assets is net of accumulated impairment charges of $9.1 million. As of December 31, 2016, the net carrying value of the finite-lived intangible assets is comprised of distribution network intangible assets of $73.7 million and customer renewal intangible assets of $7.1 million. As of December 31, 2015, the net carrying value of the finite-lived intangible assets was comprised of distribution network intangible assets of $81.0 million and customer renewal intangible assets of $11.7 million.

The remaining finite-lived intangible assets as of December 31, 2016 will be amortized over an expected remaining useful life of 13.0 years. The distribution network intangible asset will be amortized over an expected remaining useful life of 14.0 years, and the customer renewal intangible asset will be amortized over an expected remaining useful life of 2.7 years. The estimated amortization expense for each of the five succeeding fiscal years and thereafter related to the Company’s finite-lived intangible assets is as follows:

	Amount
2017	$	8.8
2018	8.8
2019	7.3
2020	6.1
2021	5.9
2022 and thereafter	43.9
Total	$	80.8

F-55

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

11.DEBT AND FINANCING ARRANGEMENTS

a) Financing Structure

The following table shows the Company’s financing structure:

	Outstanding(1)		Unamortized discount and debt issuance costs		Balance(2)
December 31, 2016
2010 Senior notes due 2020 (discount is based on imputed interest rate of 2.80%)	300.0		1.8		298.2
2015 Senior notes due 2025 (discount is based on imputed interest rate of 2.18%)	500.0		4.0		496.0
Swiss office building mortgage	16.9		—		16.9
Swiss office building credit facility	5.1		—		5.1
$900 million Secured letter of credit facility — uncommitted	458.0		—		—
$200 million Secured letter of credit facility — committed	—		—		—
	$	1,280.0	$	5.8	$	816.2
December 31, 2015
2006 Senior notes due 2016 (discount is based on imputed interest rate of 3.77%)	$	500.0	$	0.5	$	499.5
2010 Senior notes due 2020 (discount is based on imputed interest rate of 2.78%)	300.0		2.3		297.7
2015 Senior notes due 2025 (discount is based on imputed interest rate of 2.18%)	500.0		4.3		495.7
Swiss office building mortgage	17.9		—		17.9
Swiss office building credit facility	5.1		—		5.1
$1,000 million Secured letter of credit facility — uncommitted	507.5		—		—
$150 million Secured letter of credit facility — committed	—		—		—
	$	1,830.5	$	7.1	$	1,315.9

(1)Indicates utilization of commitment amount, not drawn borrowings.

(2)Represents the principal amount borrowed, net of unamortized discount and debt issuance costs.

b) 2006 Senior Notes Due 2016

In 2006, Allied World Assurance Company Holdings, Ltd, a Bermuda company (“Allied World Bermuda”) issued $500.0 million aggregate principal amount of 7.50% Senior Notes due August 1, 2016 (the “2006 Senior Notes”), with interest payable semi-annually. The 2006 Senior Notes were fully repaid at maturity by Allied World Bermuda.

c) 2010 Senior Notes Due 2020

In November 2010, Allied World Bermuda issued $300.0 million aggregate principal amount of 5.50% Senior Notes due November 15, 2020 (the “2010 Senior Notes”), with interest on the notes payable semi-annually. The 2010 Senior Notes are Allied World Bermuda’s unsecured and unsubordinated obligations and rank equally in right of payment with all existing and future unsecured and unsubordinated indebtedness. Allied World Bermuda may redeem the 2010 Senior Notes at any time or from time to time in whole or in part at a redemption price equal to the greater of the principal amount of the 2010 Senior Notes to be redeemed or a make-whole price, plus accrued and unpaid interest. Allied World Bermuda has no current expectations of redeeming the notes prior to maturity. The 2010 Senior Notes include covenants and events of default that are usual and customary, but do not contain any financial covenants.

d) 2015 Senior Notes Due 2025

In October 2015, Allied World Bermuda issued $500.0 million aggregate principal amount of 4.35% Senior Notes due October 29, 2025 (the “2025 Senior Notes”), with interest on the notes payable semi-annually. Proceeds from these senior notes were used to refinance the 2006 Senior Notes which matured in August 2016. The 2025 Senior Notes are Allied World

F-56

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Bermuda’s unsecured and unsubordinated obligations and rank equally in right of payment with all existing and future unsecured and unsubordinated indebtedness. Allied World Bermuda may redeem the 2025 Senior Notes at any time or from time to time in whole or in part at a redemption price equal to the greater of the principal amount of the 2025 Senior Notes to be redeemed or a make-whole price, in each case, plus accrued and unpaid interest. Allied World Bermuda has no current expectations of redeeming the notes prior to maturity. The 2025 Senior Notes include covenants and events of default that are usual and customary, but do not contain any financial covenants.

e) Swiss Office Building Mortgage

In 2014, the Company entered into a 20-year mortgage commitment with a Swiss bank for the construction of a company-used office building in Zug, Switzerland. The total proceeds received in 2014 under the mortgage were $14.2 million (CHF 14.0 million) with a fixed annual interest rate of 3.2% payable quarterly. An additional $4.0 million (CHF 4.0 million) of proceeds from the mortgage was drawn during the first quarter of 2015. The mortgage payments are $0.3 million (CHF 0.3 million) per year, plus accrued interest, for the first 19 years with the remaining balance payable at the end of the mortgage. The outstanding balance of the mortgage is included in “other long-term debt” on the consolidated balance sheets.

f)  Swiss Office Building Credit Facility

In conjunction with the above mortgage commitment, the Company entered into a three-year credit facility with a Swiss bank that provides up to $5.1 million (CHF 5.0 million) for general corporate purposes, however the Company will use the proceeds from the credit facility to fund the purchase of the office building in Zug, Switzerland. The Company utilized the full commitment of the credit facility to finance the purchase of the Swiss office space. The interest rate for the credit facility is 2.5%. The outstanding balance of the credit facility is included in “other long-term debt” on the consolidated balance sheets.

g) Credit Facilities

In the normal course of its operations, the Company enters into agreements with financial institutions to obtain secured and unsecured credit facilities.

Allied World Bermuda has a collateralized amended letter of credit facility with Citibank Europe plc. that has been and will continue to be used to issue standby letters of credit. The maximum aggregate amount available under this letter of credit facility as of December 31, 2016 and 2015 was $900.0 million and $1.0 billion, respectively on an uncommitted basis.

On November 27, 2007, Allied World Bermuda entered into an $800.0 million five-year senior credit facility (the “Credit Facility”) with a syndication of lenders. The Credit Facility consisted of a $400.0 million secured letter of credit facility for the issuance of standby letters of credit (the “Secured Facility”) and a $400.0 million unsecured facility for the making of revolving loans and for the issuance of standby letters of credit.

On June 7, 2012, Allied World Bermuda amended the Secured Facility. The amended $450.0 million four-year secured credit facility (the “Amended Secured Credit Facility”) is primarily used for the issuance of standby letters of credit to support obligations in connection with the insurance and reinsurance business of Allied World Bermuda and its subsidiaries. A portion of the facility may also be used for revolving loans for general corporate and working capital purposes, up to a maximum of $150.0 million. Allied World Bermuda may request that existing lenders under the Amended Secured Credit Facility make additional commitments from time to time, up to $150.0 million, subject to approval by the lenders. The Amended Secured Credit Facility contains representations, warranties and covenants customary for similar bank loan facilities, including certain covenants that, among other things, require the Company to maintain a certain leverage ratio and financial strength rating.

On November 12, 2014, Allied World Bermuda gave irrevocable notice to the administrative agent under the Amended Secured Credit Facility to reduce the aggregate commitment from $450.0 million to $150.0 million. All other material items of the Amended Secured Credit Facility remain unchanged.

On June 16, 2016, Allied World Bermuda entered into a Credit Agreement that provides for a $200 million five-year senior unsecured revolving credit facility (the “Facility”) for the making of revolving loans and short-term swingline loans to the Company. The aggregate commitment of $200 million under the Facility may be increased by up to $150 million upon the Company’s request and upon the agreement of one or more Lenders or additional lenders. Borrowings in the form of swingline loans are subject to a sublimit of $25 million included within the $200 million aggregate commitment. Borrowings under the

F-57

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Credit Agreement may be used by the Company for general corporate purposes. Borrowings under the Credit Agreement bear interest at a rate selected by the Company and equal to either the Base Rate or LIBOR plus a margin, other than swingline loans, which will only bear interest at the Base Rate plus a margin. The Credit Agreement requires that all revolving loans be repaid in full no later than the fifth anniversary of the Closing Date and that any swingline loans be repaid in full no later than the earlier of (i) ten business days after such swingline loan is made and (ii) the fifth anniversary of the Closing Date. The Company has unconditionally guaranteed the obligations under the Facility.

The Company will pay customary arrangement and administration fees under the Credit Agreement. There is an additional fee payable at an annual rate based upon the long-term senior unsecured debt ratings of Allied World Switzerland and the Company in effect from time to time on the average daily unutilized commitments of the Lenders.

The Facility replaced the four-year senior secured credit facility under the Amended Secured Credit Facility, dated as of June 7, 2012, by and among the Company, the lenders party thereto, Citibank, N.A., as syndication agent, and Wells Fargo Bank, National Association, as administrative agent, fronting bank and letters of credit agent.

h)Debt Maturities

The following table reflects the Company’s debt maturities, which includes its senior notes and other long-term debt:

	Amount
2017	$	5.4
2018	0.3
2019	0.3
2020	300.3
2021	0.3
2022 and thereafter	515.4
Total	$	822.0

12.INCOME TAXES

Under Swiss law, a resident company is subject to income tax at the federal, cantonal and communal levels that is levied on net income. Income attributable to permanent establishments or real estate located abroad is excluded from the Swiss tax base. Allied World Switzerland is a holding company and, therefore, is exempt from cantonal and communal income tax. As a result, Allied World Switzerland is subject to Swiss income tax only at the federal level. Allied World Switzerland is resident of the Canton of Zug and, as such, is subject to an annual cantonal and communal capital tax on the taxable equity of Allied World Switzerland in Switzerland. Allied World Switzerland has a Swiss operating company resident in the Canton of Zug. The operating company is subject to federal, cantonal and communal income tax and to annual cantonal and communal capital tax.

Under current Bermuda law, Allied World Bermuda and its Bermuda subsidiaries are not required to pay taxes in Bermuda on either income or capital gains. Allied World Bermuda and Allied World Assurance Company, Ltd have received an assurance from the Bermuda Minister of Finance under the Exempted Undertakings Tax Protection Act 1966 of Bermuda, that in the event of any such taxes being imposed, Allied World Bermuda and Allied World Assurance Company, Ltd will be exempted until March 2035.

Certain subsidiaries of Allied World Switzerland file U.S. federal income tax returns and various U.S. state income tax returns, as well as income tax returns in Canada, Hong Kong, Ireland, Singapore, Switzerland and the United Kingdom. The Company has open tax years that are potentially subject to examinations by local tax authorities, in the following major tax jurisdictions: the U.S., 2011 to 2016; the United Kingdom, 2015 and 2016; Ireland, 2012 to 2016; Switzerland, 2013 to 2016; Hong Kong, 2010 to 2016; and Singapore, 2012 to 2016. The U.S. Internal Revenue Service (the “IRS”) is currently conducting an audit of the 2014 tax return of the U.S. services company. The audit is ongoing and the Company is not aware of any findings from the audit thus far. During the year ended December 31, 2016, the IRS completed its audit of the 2012 consolidated tax return of the Company’s U.S. subsidiaries. There were no findings as a result of the audit. To the best of the Company’s knowledge, there are no other income tax examinations pending by any other tax authority.

F-58

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Management has deemed all material tax positions to have a greater than 50% likelihood of being sustained based on technical merits if challenged. The Company does not expect any material unrecognized tax benefits within 12 months of December 31, 2016.

The components of income tax expense are as follows:

	Year Ended December 31,
	2016			2015			2014
Current income tax expense	$	5.1		$	9.8		$	26.8
Deferred income tax (benefit) expense	(14.2		)	(4.0		)	3.7
Income tax (benefit) expense	$	(9.1	)	$	5.8		$	30.5

Our income or loss is primarily sourced from our Bermuda, U.S., European, including Switzerland, and Asia Pacific operations. The income (loss) before income taxes for these operations are as follows:

	Year Ended December 31,
	2016			2015			2014
Switzerland	$	(25.5	)	$	(15.7	)	$	(19.0	)
Bermuda	336.6			162.1			460.2
United States	(27.5		)	12.8			72.9
All other jurisdictions	(37.4		)	(69.5		)	6.7
Income before income taxes	$	246.2		$	89.7		$	520.8

Deferred income taxes reflect the tax impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. The significant components of the net deferred tax assets are as follows:

	December 31,
	2016			2015
Deferred tax assets:
Reserve for losses and loss expenses	$	17.7		$	22.2
Equity compensation	16.0			14.2
Unearned premium	17.1			18.1
Deferred acquisition costs	11.9			10.5
Mark-to-market losses	8.6			—
Net loss carryforward	21.0			27.3
Total deferred tax assets	92.3			92.3
Deferred tax liabilities:
Intangible assets	(21.9		)	(23.3		)
Mark-to-market gains	—			(3.0		)
Depreciation	(4.4		)	(6.4		)
Market discount on bonds	(2.0		)	(1.2		)
Other	(1.2		)	(5.2		)
Total deferred tax liabilities	(29.5		)	(39.1		)
Net deferred taxes before valuation allowance	62.8			53.2
Valuation allowance	(24.1		)	(28.8		)
Net deferred tax assets	$	38.7		$	24.4

The valuation allowance reported in the current period relates to net operating loss carryforwards for the European and Asia Pacific operations as it is unlikely those operations will have sufficient income to utilize the net loss carryforwards in the near term. The valuation allowance decreased by $4.7 million during the year ended December 31, 2016 compared to the year

F-59

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

ended December 31, 2015. The decrease in the valuation allowance was due to the decrease in the net loss carryforwards. The net loss carryforwards from the United Kingdom and Asia Pacific operations do not expire. The net loss carryforward in our Swiss operations expire in seven years.

Current tax receivable and payable has been included in “other assets” and “accounts payable and accrued liabilities” on the consolidated balance sheets, respectively. Current taxes receivable or payable was as follows:

	December 31,
	2016		2015
Current tax receivable	$	5.5	$	5.5
Current tax payable	$	0.7	$	2.5

The expected tax provision has been calculated using the pre-tax accounting income in each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate. The statutory tax rates for our Swiss, Bermuda, U.S., Canada, Hong Kong, Ireland, Singapore and the United Kingdom operations are 7.8%, 0%, 35%, 15%, 16.5%, 12.5%, 17% and 20%, respectively. The reconciliation between the Company’s effective tax rate on pre-tax accounting income and the expected tax rate is as follows:

	Year Ended December 31,
	2016		2015		2014
Expected tax rate	7.8	%	7.8	%	7.8	%
Income not subject to income tax	(10.7	)%	(14.2	)%	(7.1	)%
Valuation allowance	4.4	%	14.5	%	2.3	%
Foreign taxes at local expected tax rates	(4.6	)%	(1.7	)%	4.4	%
Disallowed expenses and capital allowances	0.4	%	3.2	%	0.2	%
Prior year refunds and adjustments	(0.3	)%	—	%	1.2	%
Other	(0.7	)%	(3.2	)%	(2.9	)%
Effective tax rate	(3.7	)%	6.4	%	5.9	%

The Company recorded a negative effective tax rate for the year ended December 31, 2016, due to recording an income tax benefit in most of our jurisdictions, due to pre-tax losses, while most of our pre-tax income was generated in Bermuda, which is not subject to income tax. During the year ended December 31, 2016, the income from the Company’s Bermuda operations represented 137% of the Company’s consolidated ‘income before income taxes’.

The ‘Income not subject to income tax’ noted in the table above related to the income from the Company’s Bermuda operations, which are not subject to income tax. The change in this line item noted in the effective tax rate reconciliation for the year ended December 31, 2015 compared to the year ended December 31, 2014 was due to the income from the Company’s Bermuda operations representing a higher percentage of the Company’s consolidated ‘Income before income taxes’ during the year ended December 31, 2015 compared to the year ended December 31, 2014. During the years ended December 31, 2015 and 2014, the income from the Company’s Bermuda operations represented 181% and 88%, respectively, of the Company’s consolidated ‘income before income taxes’.

F-60

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

13.SHAREHOLDERS’ EQUITY

a)Authorized shares

The issued share capital consists of the following:

	December 31,
	2016		2015
Common shares issued and fully paid, 2016 and 2015: CHF 4.10 per share	93,586,418		95,523,230
Share capital at end of year	$	378.8	$	386.7

	2016		2015
Shares issued at beginning of year	95,523,230		100,775,256
Shares canceled	(1,936,812	)	(5,252,026	)
Total shares issued at end of year	93,586,418		95,523,230
Treasury shares issued at beginning of year	4,563,595		4,579,774
Shares repurchased	4,669,513		6,047,437
Shares issued out of treasury	(807,998	)	(811,590	)
Shares canceled	(1,936,812	)	(5,252,026	)
Total treasury shares at end of year	6,488,298		4,563,595
Total shares outstanding at end of year	87,098,120		90,959,635

During the years ended December 31, 2016 and 2015, 1,936,812 and 5,252,026 voting shares repurchased and designated for cancellation, respectively, were constructively retired and canceled.

As required under Swiss law, the Company cannot hold more than 10% of its registered capital in treasury shares, unless such shares have been acquired in connection with a restriction on transferability, in which case the foregoing threshold is 20%.

b)Dividends

As a holding company, Allied World Switzerland’s principal source of income is dividends or other sources of permitted payments from its subsidiaries. These funds provide the cash flow required for dividend payments to the Company’s shareholders. The ability of the Company’s insurance and reinsurance subsidiaries to make dividend payments is limited by the applicable laws and regulations of the various states and countries in which they operate.

The Company’s primary restrictions on net assets of subsidiaries consist of regulatory requirements placed upon the regulated insurance and reinsurance subsidiaries to hold minimum amounts of total statutory capital and surplus and there were no other material restrictions on net assets in place as of December 31, 2016.

Under Swiss law, distributions to shareholders may be paid only if the Company has sufficient distributable profits from previous fiscal years, or if the Company has freely distributable reserves, each as presented on the audited stand-alone statutory balance sheet. Distributions to shareholders out of the share and participation capital may be made by way of a capital reduction in the form of a reduction to par value to achieve a similar result as the payment of a dividend. Under Swiss law, if the Company’s general capital reserves amount to less than 20% of the share and participation capital recorded in the Swiss Commercial Register, then at least 5% of the Company’s annual profit must be retained as general reserves.

On May 1, 2014, the shareholders approved the Company’s proposal to pay cash dividends in the form of a distribution out of general legal reserve from capital contributions. The distribution amounts were paid to shareholders in quarterly installments of $0.225 per share in July 2014, October 2014, January 2015 and April 2015.

On April 30, 2015, the shareholders approved the Company’s proposal to pay cash dividends in the form of a distribution out of general legal reserve from capital contributions. The distribution amounts were paid to shareholders in quarterly installments of $0.26 per share in July 2015, October 2015, December 2015 and April 2016.

F-61

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

On April 19, 2016, the shareholders approved the Company’s proposal to pay cash dividends in the form of a distribution out of general legal reserve from capital contributions. The distribution amounts are paid to shareholders in quarterly installments of $0.26 per share. The first three installments of the dividend were paid to shareholders on June 30, 2016, September 29, 2016 and December 29, 2016. The fourth dividend scheduled for March 2017 will, subject to approval by the Company’s shareholders, be deferred in conjunction with the announced transaction with Fairfax.

The Company paid the following dividends during the years ended December 31, 2016, 2015 and 2014:

Dividend Paid	Dividend Per Share		Total Amount Paid
December 29, 2016	$	0.260	$	22.6
September 29, 2016	$	0.260	$	22.6
June 30, 2016	$	0.260	$	22.8
March 31, 2016	$	0.260	$	23.4
December 31, 2015	$	0.260	$	23.7
October 1, 2015	$	0.260	$	23.6
July 2, 2015	$	0.260	$	23.6
April 2, 2015	$	0.225	$	21.5
January 2, 2015	$	0.225	$	21.7
October 2, 2014	$	0.225	$	21.7
July 2, 2014	$	0.225	$	21.9
April 3, 2014	$	0.167	$	16.5

c)Share Repurchases

On April 19, 2016, the shareholders approved a share repurchase program (the “2016 share repurchase program”) in order for the Company to repurchase up to $500.0 million of its common shares. The 2016 share repurchase program supersedes the 2014 share repurchase program and no further repurchases will be made under the 2014 share repurchase program. Repurchases may be effected from time to time through open market purchases, privately negotiated transactions, tender offers or otherwise. The timing, form and amount of the share repurchases under the 2016 share repurchase program will depend on a variety of factors, including market conditions, the Company’s capital position, legal requirements and other factors. Under the terms of this share repurchase program, the first three million of common shares repurchased will remain in treasury and will be used by the Company to satisfy share delivery obligations under its equity-based compensation plans. Any additional common shares repurchased will be designated for cancellation at acquisition and will be canceled upon shareholder approval. Shares repurchased and designated for cancellation are constructively retired and recorded as a share cancellation. The Company does not anticipate repurchasing any of its common shares pending the completion of the Fairfax transaction.

Shares repurchased by the Company and not designated for cancellation are classified as “Treasury shares, at cost” on the consolidated balance sheets. The Company will issue shares out of treasury principally related to the Company’s employee benefit plans. Shares repurchased and designated for cancellation are constructively retired and recorded as a share cancellation.

The Company’s share repurchases were as follows:

	Year Ended December 31,
	2016		2015		2014
Common shares repurchased	4,669,513		6,047,437		4,906,785
Total cost of shares repurchased	$	166.3	$	245.3	$	175.4
Average price per share	$	35.61	$	40.56	$	35.74

On May 6, 2015, the Company repurchased 4,053,537 shares from Exor S.A. at a repurchase price of $40.546 per share, for an aggregate purchase price of $164.4 million. The repurchase was executed under the 2014 share repurchase program.

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

14.EMPLOYEE BENEFIT PLANS

The Company implemented the Allied World Assurance Company Holdings, AG 2012 Omnibus Incentive Compensation Plan (the “2012 Omnibus Plan”). Under the 2012 Omnibus Plan, up to 4,500,000 common shares may be issued, subject to adjustment. The 2012 Omnibus Plan provides for the grant of options intended to qualify as incentive stock options under the Internal Revenue Code, non-qualified stock options, stock appreciation rights, restricted shares, RSUs, deferred share units, cash incentive awards, performance-based compensation awards and other equity-based and equity-related awards. These awards generally vest pro rata over four years from the date of grant, except for the performance-based awards that will generally vest over a three-year period based on the achievement of certain performance conditions.

The Allied World Assurance Company Holdings, AG Third Amended and Restated 2001 Employee Stock Option Plan (the “Plan”), the Allied World Assurance Company Holdings, AG Third Amended and Restated 2004 Stock Incentive Plan and the Allied World Assurance Company Holdings, AG Third Amended and Restated Long-Term Incentive Plan (the “LTIP”) were automatically terminated, replaced and superseded by the 2012 Omnibus Plan on May 3, 2012, except that any outstanding awards granted under such plans remain in effect pursuant to their terms.

a)Employee option plan

Options under the Plan are exercisable in certain limited conditions, expire after 10 years, and generally vest pro-rata over four years from the date of grant. The exercise price of options issued were approved by the Compensation Committee but were not less than the fair market value of the common shares of Allied World Switzerland on the date the option award is granted. The Company has not granted stock options since 2011.

The following table summarizes the activity related to options granted and exercised:

	Year Ended December 31,
	2016			2015			2014
Options granted	—			—			—
Weighted average grant date fair value	$	—		$	—		$	—
Options exercised	(428,938		)	(454,602		)	(479,831		)
Total intrinsic value of options exercised	$	10.8		$	12.0		$	10.3
Proceeds from option exercises	$	10.3		$	10.1		$	10.0

The activity related to the Company’s stock options is as follows:

	Year Ended December 31, 2016
	Options		Weighted Average Exercise Price			Weighted Average Contractual Term	Aggregate Intrinsic Value
Outstanding at beginning of year	1,968,607		$	16.86
Exercised	(428,938	)	(15.24		)
Forfeited	(13,926	)	10.31
Outstanding at end of year	1,525,743		17.36			3.3 years	$	55.5
Exercisable at end of year	1,525,743		$	17.36		3.3 years	$	55.5

As of December 31, 2016, there was no remaining unrecognized compensation expense related to stock options granted under the Plan.

b)Restricted stock units and performance-based equity awards

The RSUs vest pro-rata over four years from the date of grant. The compensation expense for the RSUs is based on the fair market value of Allied World Switzerland’s common shares at the date of grant. The Company estimates the expected

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

forfeitures of RSUs at the date of grant and recognizes compensation expense only for those awards that the Company expects to vest. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate.

Each award for the performance-based RSUs represents the right to receive a number of shares in the future, based upon the achievement of established performance criteria during the applicable performance period. The compensation expense for the performance-based RSUs is based on the fair market value of Allied World Switzerland’s common shares at the time of grant. For the performance-based RSUs granted in 2016, 2015 and 2014, the Company anticipates that the performance goals are likely to be achieved. Based on the performance goals, the performance-based RSUs granted in 2016, 2015 and 2014 are expensed at 100%, 100% and 55%, respectively, of the fair market value of Allied World Switzerland’s common shares on the date of grant. The expense is recognized over the performance period.

The activity related to the Company’s RSU awards is as follows:

	Year Ended December 31, 2016
	Number of Awards		Weighted Average Grant Date Fair Value			Aggregate Intrinsic Value
Outstanding at beginning of year	819,309		$	37.33
RSUs granted	689,042		32.00
RSUs forfeited	(123,307	)	(34.80		)
RSUs fully vested	(251,115	)	(36.30		)
Outstanding at end of year	1,133,929		$	34.56		$	60.9

As of December 31, 2016, there remained $28.9 million of total unrecognized compensation expense related to 1,133,929 unvested RSUs awarded. This expense is expected to be recognized over a weighted-average period of 1.7 years.

The activity related to the Company’s performance-based equity awards is as follows:

	Year Ended December 31, 2016
	Number of Awards		Weighted Average Grant Date Fair Value			Aggregate Intrinsic Value
Outstanding at beginning of year	591,683		$	34.78
Performance-based equity awards granted	200,730		31.95
Additional awards granted due to achievement of performance criteria	24,979		29.24
Performance-based equity awards forfeited	(16,993	)	(36.71		)
Performance-based equity awards fully vested	(216,958	)	(29.24		)
Outstanding at end of year	583,441		$	35.57		$	31.3

As of December 31, 2016, there was remaining $7.3 million of total unrecognized compensation expense related to 583,441 unvested performance-based equity awarded. This expense is expected to be recognized over a weighted-average period of 1.6 years.

The RSUs and performance-based equity awards vested in 2016, 2015 and 2014 had aggregate intrinsic values of $14.0 million, $16.9 million and $14.4 million, respectively, at the time of vesting.

c)Cash-equivalent stock awards

As part of the Company’s annual year-end compensation awards, the Company granted both stock-based awards and cash-equivalent stock awards. The cash-equivalent awards were granted to employees who received RSU and performance-based awards and were granted in lieu of granting the full award as a stock-based award. The cash-equivalent RSU awards vest pro-rata over four years from the date of grant. The cash-equivalent performance-based awards vest after a three-year performance period. As the cash-equivalent awards are settled in cash, the Company establishes a liability equal to the product

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

of the fair market value of Allied World Switzerland’s common shares as of the end of the reporting period and the total awards outstanding. At December 31, 2016, the liability was $32.2 million, and payments for awards vesting in the period are typically settled within the first three months of the year. The liability is included in “accounts payable and accrued expenses” in the consolidated balance sheets and changes in the liability are recorded in “general and administrative expenses” in the consolidated income statements.

The activity related to the Company’s cash-equivalent RSUs and performance-based equity awards is as follows:

	RSU’s					Performance-based Awards
Year Ended December 31, 2016	Number of Awards		Weighted Average Grant Date Fair Value			Number of Awards		Weighted Average Grant Date Fair Value
Outstanding at beginning of year	1,277,083		$	31.94		693,477		33.25
Granted	167,438		31.95			50,183		31.95
Additional awards granted due to achievement of performance criteria	—		—			37,434		29.24
Forfeited	(90,245	)	(33.66		)	(18,104	)	(35.27		)
Fully vested	(581,829	)	(29.14		)	(325,386	)	(29.24		)
Outstanding at end of year	772,447		$	33.86		437,604		$	35.65

d)Total Stock-Related Compensation Expense

The following table shows the total stock-related compensation expense relating to the stock options, RSUs, LTIPs and cash equivalent awards.

	Year Ended December 31,
	2016		2015		2014
Stock options	$	—	$	0.3	$	1.9
RSUs and performance-based equity awards	16.4		15.0		12.3
Cash-equivalent stock awards	21.9		34.4		37.8
Total	$	38.3	$	49.7	$	52.0

e)Pension Plans

The Company provides defined contribution retirement plans for its employees and officers. Contributions are made by the Company, and in some locations, these contributions are supplemented by the local plan participants. Contributions are based on a percentage of the participant’s base salary depending upon competitive local market practice and vesting provisions meeting legal compliance standards. The amount that an individual employee or officer can contribute may also be subject to regulatory requirements relating to the country of which the individual is a citizen. The Company incurred expenses for these defined contribution arrangements of $13.7 million, $13.5 million and $10.6 million for the years ended December 31, 2016, 2015 and 2014, respectively.

f)Employee Share Purchase Plan

Under the Allied World Assurance Company Holdings, AG Amended and Restated 2008 Employee Share Purchase Plan (“ESPP”), eligible employees of the Company may purchase common shares of the Company at a 15% discount from the fair market value of one common share on the last trading day of each offering period. Employees purchase a variable number of common shares through payroll deductions elected as of the beginning of the offering period. The Company may sell up to 3,000,000 common shares to eligible employees under the ESPP.

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

15.EARNINGS PER SHARE

The following table sets forth the comparison of basic and diluted earnings per share:

	Year Ended December 31,
	2016		2015		2014
Basic earnings per share:
Net income	$	255.3	$	83.9	$	490.3
Weighted average common shares outstanding	88,275,810		92,530,208		97,538,319
Basic earnings per share	$	2.89	$	0.91	$	5.03

	Year Ended December 31,
	2016		2015		2014
Diluted earnings per share:
Net income	$	255.3	$	83.9	$	490.3
Weighted average common shares outstanding	88,275,810		92,530,208		97,538,319
Share equivalents:
Stock options	839,038		1,031,666		1,432,960
RSU and PU awards	677,033		591,773		605,808
Employee share purchase plan	9,013		20,813		14,686
Weighted average common shares and common share equivalents outstanding — diluted	89,800,894		94,174,460		99,591,773
Diluted earnings per share	$	2.84	$	0.89	$	4.92

For the years ended December 31, 2016, 2015 and 2014, a weighted average of 229,359, 308,405 and nil RSUs were considered anti-dilutive and were therefore excluded from the calculation of the diluted earnings per share, respectively.

16.COMMITMENTS AND CONTINGENCIES

a)Concentrations of Credit Risk

Credit risk arises out of the failure of a counterparty to perform according to the terms of the contract.

The Company’s investment portfolio is managed pursuant to guidelines that follow prudent standards of diversification. The guidelines limit the allowable holdings of a single issue and issuers. The Company believes that there are no significant concentrations of credit risk associated with its investment portfolio. As of December 31, 2016 and 2015, substantially all of the Company’s cash and investments were held with one custodian.

Insurance balances receivable primarily consist of net premiums due from insureds and reinsureds. The Company believes that the counterparties to these receivables are able to meet, and will meet, all of their obligations. The Company’s credit risk is further reduced by the contractual right to offset loss obligations or unearned premiums against premiums receivable. The insurance balances receivable that are outstanding greater than 90 days was $20.0 million as of December 31, 2016, which represented 2.5% of the total receivable balance. Given the trend of writing more retail business, the Company has recorded an allowance for doubtful accounts against insurance balances receivable of $3.0 million as of December 31, 2016.

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

b)Operating Leases

The Company leases office space under operating leases expiring in various years through 2031. The following are future minimum rental payments as of December 31, 2016:

	Amount
2017	$	21.6
2018	20.7
2019	19.6
2020	17.8
2021	16.9
2021 and thereafter	116.2
	$	212.8

Total rent expense for the years ended December 31, 2016, 2015 and 2014 was $26.5 million, $25.9 million and $19.0 million, respectively. The rent expense for the years ended December 31, 2016, 2015 and 2014 are net of sublease income of $1.8 million, $0.7 million and $0.1 million, respectively.

c) Producers

The three largest individual producers as a percentage of gross premiums written are as follows:

	Year Ended December 31,
	2016		2015		2014
Marsh & McLennan Companies, Inc.	21	%	24	%	25	%
Aon Corporation	14	%	16	%	17	%
Willis Group Holdings	9	%	11	%	10	%

d)Legal Proceedings

The Company, in common with the insurance industry in general, is subject to litigation and arbitration in the normal course of its business. These legal proceedings generally relate to claims asserted by or against the Company in the ordinary course of insurance or reinsurance operations. Estimated amounts payable under these proceedings are included in the reserve for losses and loss expenses in the Company’s consolidated balance sheets. As of December 31, 2016, the Company was not a party to any material legal proceedings arising outside the ordinary course of business that management believes will have a material adverse effect on the Company’s results of operations, financial position or cash flow.

17.STATUTORY CAPITAL AND SURPLUS

Allied World Switzerland’s ability to pay dividends is subject to certain regulatory restrictions on the payment of dividends by its subsidiaries. The payment of such dividends is limited by applicable laws and statutory requirements of the jurisdictions in which Allied World Switzerland and its subsidiaries operate. The total amount of restricted net assets for the Company’s consolidated subsidiaries as of December 31, 2016 was $2,678.3 million.

The minimum required statutory capital and surplus is the amount of statutory capital and surplus necessary to satisfy regulatory requirements based on the Company’s current operations. The statutory capital and surplus and minimum required statutory capital and surplus for the Company’s most significant regulatory jurisdictions at December 31, 2016 and 2015 were as follows:

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

	December 31, 2016				December 31, 2015
	Statutory Capital and Surplus		Minimum Required Statutory Capital and Surplus		Statutory Capital and Surplus		Minimum Required Statutory Capital and Surplus
Bermuda	$	3,494.1	$	800.2	$	3,270.9	$	853.2
United States	1,185.9		263.3		1,215.5		241.0
Ireland	395.5		84.7		414.0		26.9
Switzerland	327.5		218.2		183.6		17.7
United Kingdom	268.4		264.1		245.9		231.8

There were no state-prescribed or permitted regulatory accounting practices for any of our insurance entities that resulted in reported statutory surplus that differed from that which would have been reported under the prescribed practices of the respective regulatory authorities, including the National Association of Insurance Commissioners. Statutory accounting under the prescribed practices of the respective regulatory authorities differs from U.S. GAAP accounting in the treatment of various items, including reporting of investments, acquisition costs and deferred income taxes.

The statutory net income (loss) for the Company’s most significant regulatory jurisdictions for the years ended December 31, 2016, 2015 and 2014 was as follows:

	Year Ended December 31,
	2016			2015			2014
Bermuda	$	366.4		$	221.5		$	487.1
United States	19.0			40.5			45.4
Ireland	10.1			3.2			3.2
Switzerland	11.0			10.7			7.4
United Kingdom	(5.1		)	(39.4		)	(7.8		)

At December 31, 2016, the maximum amount of ordinary dividends or distributions that can be paid, without prior regulatory approval, for the Company’s most significant regulatory jurisdictions, were as follows:

	December 31, 2016
Bermuda	$	873.5
United States	—
Ireland	35.5
Switzerland	—
United Kingdom	2.7

a)Bermuda

The Company’s Bermuda subsidiary, Allied World Assurance Company, Ltd, is registered under the Bermuda Insurance Act 1978 and Related Regulations as amended. As a Class 4 insurer, Allied World Assurance Company, Ltd is required to maintain minimum solvency standards and to hold available statutory capital and surplus equal to or exceeding the enhanced capital requirements as determined by the Bermuda Monetary Authority under the Bermuda Solvency Capital Requirement model (“BSCR model”). The BSCR model is a risk-based capital model that provides a method for determining an insurer’s minimum required capital taking into account the risk characteristics of different aspects of the company’s business. In addition, this subsidiary is required to maintain a minimum liquidity ratio. As of December 31, 2016 and 2015, this subsidiary met the requirements.

b) United States

The Company’s U.S. insurance subsidiaries are subject to the insurance laws and regulations of the states in which they are domiciled, and also states in which they are licensed or authorized to transact business. These laws also restrict the amount

F-68

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

of ordinary shareholder dividends the subsidiaries can pay. The restrictions are generally based on statutory surplus and/or statutory net income as determined in accordance with the relevant statutory accounting requirements of the individual domiciliary states. The U.S. subsidiaries are required to file annual statements with insurance regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities. The U.S. subsidiaries are also required to maintain minimum levels of solvency and liquidity as determined by law, and comply with capital requirements and licensing rules. As of December 31, 2016 and 2015, the actual levels of solvency, liquidity and capital of each U.S. subsidiary were in excess of the minimum levels required.

c)Ireland

The Company’s Irish insurance subsidiary is regulated by the Central Bank of Ireland pursuant to the Insurance Acts 1909 to 2000, the Central Bank Acts 1942 to 2015 and all statutory instruments relating to insurance made or adopted under the European Communities Acts 1972 to 2014, including the European Union (Insurance and Reinsurance) Regulations, 2015. This subsidiary is required to maintain a minimum level of capital. As of December 31, 2016 and 2015, these requirements were met. The amount of dividends that this subsidiary is permitted to distribute is restricted to accumulated realized profits that have not been capitalized or distributed, less accumulated realized losses that have not been written off. The solvency and capital requirements must still be met following any distribution.

d)Switzerland

The Company’s Swiss insurance subsidiary, Allied World Assurance Company, AG, is regulated by the Swiss Financial Market Supervisory Authority (“FINMA”) pursuant to the Insurance Supervisory Law. This subsidiary’s accounts are prepared in accordance with the Swiss Code of Obligations and the Insurance Supervisory Law. This subsidiary is obligated to maintain a minimum level of capital based on the Swiss Code of Obligation, a minimum of tied assets based on the Insurance Supervisory Law and a minimum solvency margin in accordance with the Swiss Solvency Test. As of December 31, 2016 and 2015, this subsidiary met the requirements. The amount of dividends that this subsidiary is permitted to distribute is restricted to freely distributable reserves which consist of retained earnings, the current year profit and legal reserves to a certain extent. Any dividend requires approval of the shareholders and in case of the dividend exceeding the current year profit, approval is also required from FINMA. The solvency and capital requirements must still be met following any distribution.

e)United Kingdom

Allied World Capital (Europe) Limited is the sole corporate member of Syndicate 2232. Syndicate 2232 is managed by Allied World Managing Agency Limited, which is authorized and regulated by the Prudential Regulatory Authority (“PRA”) and the Financial Conduct Authority. As a member of Lloyd’s, Allied World Capital (Europe) Limited is obliged to comply with Lloyd’s byelaws and regulations (made pursuant to the Lloyd’s Acts 1871 to 1982) and applicable provisions of the Financial and Services and Markets Act 2000. The Council of Lloyd’s has wide discretionary powers to regulate members’ underwriting at Lloyd’s and its exercise of these powers might affect the return on an investment of the corporate member in a given underwriting year. The capital required to support a Syndicate’s underwriting capacity, referred to as “funds at Lloyd’s”, is assessed annually and is determined by Lloyd’s in accordance with the capital adequacy rules established by the PRA. If a member of Lloyd’s is unable to pay its debts to policyholders, such debts may be payable from the Lloyd’s Central Fund, which in many respects acts as an equivalent to a state guaranty fund in the United States. The Company has provided capital to support the underwriting of Syndicate 2232 in the form of pledged assets provided by Allied World Assurance Company, Ltd. The amount which the Company provides as funds at Lloyd’s is not available for distribution to the Company for the payment of dividends. Lloyd’s is supervised by the PRA and required to implement certain rules prescribed by the PRA under the Lloyd’s Act of 1982 regarding the operation of the Lloyd’s market. With respect to managing agents and corporate members, Lloyd’s prescribes certain minimum standards relating to management and control, solvency and other requirements and monitors managing agents’ compliance with such standards.

f)Branch Offices

The Company’s insurance subsidiaries maintain branch offices in Australia, Bermuda, Canada, Hong Kong, Labuan, Singapore, Switzerland and the United Kingdom. As branch offices are not considered separate legal entities, the required and actual statutory capital and surplus amounts for each jurisdiction in the table above include amounts related to the branch offices. These branch offices are subject to additional minimum capital or asset requirements in their countries of domicile. At

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

December 31, 2016 and 2015, the actual capital and surplus for each of these branches exceeded the relevant local regulatory requirements.

18.SEGMENT INFORMATION

The determination of reportable segments is based on how the Company’s chief operating decision maker, the Chief Executive Officer, monitors the Company’s underwriting operations. Management monitors the performance of its direct underwriting operations based on the geographic location of the Company’s offices, the markets and customers served and the type of accounts written. The Company is currently organized into three operating segments: North American Insurance, Global Markets Insurance and Reinsurance. All product lines fall within these classifications.

The North American Insurance segment includes the Company’s specialty insurance operations in the United States, Bermuda and Canada, as well as the Company’s claims administration services operation. This segment provides both property and specialty casualty insurance primarily to North American domiciled accounts. The Global Markets Insurance segment includes the Company’s specialty insurance operations in Europe and Asia Pacific, which includes offices in Dublin, Hong Kong, Labuan, London, Singapore, Sydney, and Zug, as well as the Company’s insurance agency operation. This segment provides both property and casualty insurance primarily to non-North American domiciled accounts. The Reinsurance segment includes the Company’s reinsurance operations in Bermuda, Labuan, London, New York, Singapore, and Zug. This segment provides reinsurance of property, general casualty, professional liability, specialty lines and property catastrophe coverages written by insurance companies. The Company presently writes reinsurance on both a treaty and a facultative basis, targeting several niche reinsurance markets.

Responsibility and accountability for the results of underwriting operations are assigned by major line of business within each segment. Because the Company does not manage its assets by segment, investment income, interest expense and total assets are not allocated to individual reportable segments. General and administrative expenses are allocated to segments based on various factors, including staff count and each segment’s proportional share of gross premiums written.

The Company measures its segment income or loss as underwriting income or loss plus other insurance-related income and expenses, which may include the net earnings from the claims administration services operation, insurance agency operation, derivative insurance and reinsurance contracts and other income or expense that is not directly related to our underwriting operations. Management measures results of each segment’s underwriting income or loss on the basis of the “loss and loss expense ratio,” “acquisition cost ratio,” “general and administrative expense ratio”, “expense ratio” and the “combined ratio.” The “loss and loss expense ratio” is derived by dividing net losses and loss expenses by net premiums earned. The “acquisition cost ratio” is derived by dividing acquisition costs by net premiums earned. The “general and administrative expense ratio” is derived by dividing general and administrative expenses by net premiums earned. The expense ratio is the sum of the “acquisition cost ratio” and the “general and administrative expense ratio”. The “combined ratio” is the sum of the “loss and loss expense ratio,” the “acquisition cost ratio” and the “general and administrative expense ratio.”

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

The following tables provide a summary of the segment results:

Year Ended December 31, 2016	North American Insurance			Global Markets Insurance			Reinsurance			Total
Gross premiums written	$	1,856.3		$	503.3		$	706.2		$	3,065.8
Net premiums written	1,223.4			367.5			664.9			2,255.8
Net premiums earned	1,266.9			377.8			699.4			2,344.1
Net losses and loss expenses	(862.2		)	(269.5		)	(370.1		)	(1,501.8		)
Acquisition costs	(132.0		)	(66.5		)	(141.3		)	(339.8		)
General and administrative expenses	(223.3		)	(123.7		)	(64.5		)	(411.5		)
Underwriting income (loss)	49.4			(81.9		)	123.5			91.0
Other insurance-related revenue	6.7			1.4			4.3			12.4
Other insurance-related expenses	(2.3		)	(1.1		)	(3.4		)	(6.8		)
Segment income (loss)	53.8			(81.6		)	124.4			96.6
Net investment income										217.8
Net realized investment gains										2.1
Amortization and impairment of intangible assets										(10.7		)
Interest expense										(63.7		)
Foreign exchange gain										4.1
Income before income taxes										$	246.2
Loss and loss expense ratio	68.1		%	71.3		%	52.9		%	64.1		%
Acquisition cost ratio	10.4		%	17.6		%	20.2		%	14.5		%
General and administrative expense ratio	17.6		%	32.7		%	9.2		%	17.6		%
Expense ratio	28.0		%	50.3		%	29.4		%	32.1		%
Combined ratio	96.1		%	121.6		%	82.3		%	96.2		%

F-71

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Year Ended December 31, 2015	North American Insurance			Global Markets Insurance			Reinsurance			Total
Gross premiums written	$	1,815.3		$	476.3		$	801.4		$	3,093.0
Net premiums written	1,358.1			324.1			765.8			2,448.0
Net premiums earned	1,301.4			366.8			820.2			2,488.4
Net losses and loss expenses	(910.2		)	(240.3		)	(435.8		)	(1,586.3		)
Acquisition costs	(139.6		)	(70.9		)	(164.9		)	(375.4		)
General and administrative expenses	(224.6		)	(108.4		)	(73.3		)	(406.3		)
Underwriting income (loss)	27.0			(52.8		)	146.2			120.4
Other insurance-related revenue	3.5			—			—			3.5
Other insurance-related expenses	(2.7		)	(2.5		)	(1.0		)	(6.2		)
Segment income (loss)	27.8			(55.3		)	145.2			117.7
Net investment income										182.1
Net realized investment losses										(127.6		)
Amortization and impairment of intangible assets										(9.8		)
Interest expense										(61.4		)
Foreign exchange loss										(11.3		)
Income before income taxes										$	89.7
Loss and loss expense ratio	69.9		%	65.5		%	53.1		%	63.7		%
Acquisition cost ratio	10.7		%	19.3		%	20.1		%	15.1		%
General and administrative expense ratio	17.3		%	29.5		%	8.9		%	16.3		%
Expense ratio	28.0		%	48.8		%	29.0		%	31.4		%
Combined ratio	97.9		%	114.3		%	82.1		%	95.1		%

Year Ended December 31, 2014	North American Insurance			Global Markets Insurance			Reinsurance			Total
Gross premiums written	$	1,716.3		$	280.5		$	938.6		$	2,935.4
Net premiums written	1,230.8			188.0			903.2			2,322.0
Net premiums earned	1,111.1			162.6			909.0			2,182.7
Net losses and loss expenses	(683.8		)	(61.1		)	(454.3		)	(1,199.2		)
Acquisition costs	(105.9		)	(18.2		)	(171.0		)	(295.1		)
General and administrative expenses	(219.6		)	(68.1		)	(78.0		)	(365.7		)
Underwriting income	101.8			15.2			205.7			322.7
Other insurance-related revenue	2.1			—			—			2.1
Other insurance-related expenses	(1.9		)	(6.7		)	—			(8.6		)
Segment income	102.0			8.5			205.7			316.2
Net investment income										176.9
Net realized investment gains										89.0
Amortization of intangible assets										(2.5		)
Interest expense										(57.8		)
Foreign exchange loss										(1.0		)
Income before income taxes										$	520.8
Loss and loss expense ratio	61.5		%	37.6		%	50.0		%	54.9		%
Acquisition cost ratio	9.5		%	11.2		%	18.8		%	13.5		%
General and administrative expense ratio	19.8		%	41.9		%	8.6		%	16.8		%
Expense ratio	29.3		%	53.1		%	27.4		%	30.3		%
Combined ratio	90.8		%	90.7		%	77.4		%	85.2		%

F-72

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

The following table shows an analysis of the Company’s gross premiums written by geographic location of the Company’s subsidiaries. All intercompany premiums have been eliminated.

	Year Ended December 31,
	2016		2015		2014
United States	$	1,903.4	$	1,893.4	$	1,795.6
Bermuda	495.4		543.6		640.9
Asia Pacific	352.2		313.1		167.3
Europe	296.3		326.9		318.6
Canada	18.5		16.0		13.0
Total gross premiums written	$	3,065.8	$	3,093.0	$	2,935.4

Gross premiums written attributable to Switzerland were $46.5 million, $58.2 million and $67.6 million for the years ended December 31, 2016, 2015 and 2014, respectively.

The following table shows the Company’s net premiums earned by line of business for each segment for the years ended December 31, 2016, 2015 and 2014.

	Year Ended December 31,
	2016		2015		2014
North American Insurance:
Casualty	$	396.7	$	424.0	$	334.6
Professional liability	388.5		385.3		276.1
Property	127.6		162.8		170.3
Healthcare	66.5		102.9		168.5
Programs	170.4		150.7		119.8
Specialty and other	117.2		75.6		41.9
Total	1,266.9		1,301.4		1,111.1
Global Markets Insurance:
Property	67.9		106.7		34.0
Professional liability	96.2		102.5		69.1
Specialty and other	125.9		99.8		44.2
Casualty	87.8		57.8		15.3
Total	377.8		366.8		162.6
Reinsurance:
Property	337.2		403.5		412.0
Casualty	183.7		224.4		175.5
Specialty	178.5		192.3		321.5
Total	699.4		820.2		909.0
Total net premiums earned	$	2,344.1	$	2,488.4	$	2,182.7

19.CONDENSED CONSOLIDATED PARENT COMPANY AND GUARANTOR FINANCIAL STATEMENTS

The following tables present condensed consolidating financial information as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 for Allied World Switzerland (the “Parent Guarantor”) and Allied World Bermuda (the “Subsidiary Issuer”). The Subsidiary Issuer is a direct 100%-owned subsidiary of the Parent Guarantor. Investments in subsidiaries are accounted for by the Parent Guarantor under the equity method for purposes of the supplemental consolidating presentation. Earnings of subsidiaries are reflected in the Parent Guarantor’s investment accounts and earnings. The Parent Guarantor fully and unconditionally guarantees the senior notes issued by the Subsidiary Issuer.

F-73

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Condensed Consolidating Balance Sheet:

As of December 31, 2016	Allied World Switzerland (Parent Guarantor)		Allied World Bermuda (Subsidiary Issuer)		Other Allied World Subsidiaries		Consolidating Adjustments			Allied World Switzerland Consolidated
ASSETS:
Investments	$	—	$	—	$	7,942.3	$	—		$	7,942.3
Cash and cash equivalents	13.1		0.8		707.0		—			720.9
Insurance balances receivable	—		—		784.0		—			784.0
Funds held	—		—		466.8		—			466.8
Reinsurance recoverable	—		—		1,625.0		—			1,625.0
Reinsurance recoverable on paid losses	—		—		104.4		—			104.4
Net deferred acquisition costs	—		—		121.1		—			121.1
Goodwill and intangible assets	—		—		494.4		—			494.4
Balances receivable on sale of investments	—		—		114.7		—			114.7
Investments in subsidiaries	3,433.7		4,020.1		—		(7,453.8		)	—
Due from subsidiaries	115.6		—		29.9		(145.5		)	—
Other assets	1.8		0.8		802.8		—			805.4
Total assets	$	3,564.2	$	4,021.7	$	13,192.4	$	(7,599.3	)	$	13,179.0
LIABILITIES:
Reserve for losses and loss expenses	$	—	$	—	$	6,639.2	$	—		$	6,639.2
Unearned premiums	—		—		1,688.1		—			1,688.1
Reinsurance balances payable	—		—		223.3		—			223.3
Balances due on purchases of investments	—		—		79.7		—			79.7
Senior notes	—		794.2		—		—			794.2
Other long-term debt	—		—		22.0		—			22.0
Due to subsidiaries	9.9		20.0		115.6		(145.5		)	—
Other liabilities	2.5		5.7		172.6		—			180.7
Total liabilities	12.4		819.9		8,940.5		(145.5		)	9,627.2
Total shareholders’ equity	3,551.8		3,201.8		4,251.9		(7,453.8		)	3,551.8
Total liabilities and shareholders’ equity	$	3,564.2	$	4,021.7	$	13,192.4	$	(7,599.3	)	$	13,179.0

F-74

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

As of December 31, 2015	Allied World Switzerland (Parent Guarantor)		Allied World Bermuda (Subsidiary Issuer)		Other Allied World Subsidiaries		Consolidating Adjustments			Allied World Switzerland Consolidated
ASSETS:
Investments	$	—	$	—	$	8,571.2	$	—		$	8,571.2
Cash and cash equivalents	21.8		1.0		585.2		—			608.0
Insurance balances receivable	—		—		745.9		—			745.9
Funds held	—		—		640.8		—			640.8
Reinsurance recoverable	—		—		1,480.0		—			1,480.0
Reinsurance recoverable on paid losses	—		—		96.4		—			96.4
Net deferred acquisition costs	—		—		165.2		—			165.2
Goodwill and intangible assets	—		—		504.7		—			504.7
Balances receivable on sale of investments	—		—		36.9		—			36.9
Investments in subsidiaries	3,347.0		4,396.3		—		(7,743.3		)	—
Due from subsidiaries	173.1		36.4		16.8		(226.3		)	—
Other assets	1.8		0.1		660.9		—			662.8
Total assets	$	3,543.7	$	4,433.8	$	13,504.0	$	(7,969.6	)	$	13,511.9
LIABILITIES:
Reserve for losses and loss expenses	$	—	$	—	$	6,456.2	$	—		$	6,456.2
Unearned premiums	—		—		1,683.3		—			1,683.3
Reinsurance balances payable	—		—		214.4		—			214.4
Balances due on purchases of investments	—		—		125.1		—			125.1
Senior notes	—		1,292.9		—		—			1,292.9
Other long-term debt	—		—		23.0		—			23.0
Due to subsidiaries	8.5		8.3		209.5		(226.3		)	—
Other liabilities	2.7		22.2		159.7		—			184.5
Total liabilities	11.2		1,323.4		8,871.2		(226.3		)	9,979.4
Total shareholders’ equity	3,532.5		3,110.4		4,632.8		(7,743.3		)	3,532.5
Total liabilities and shareholders’ equity	$	3,543.7	$	4,433.8	$	13,504.0	$	(7,969.6	)	$	13,511.9

F-75

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Condensed Consolidating Income Statement:

Year Ended December 31, 2016	Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
Net premiums earned	$	—		$	—		$	2,344.1		$	—		$	2,344.1
Net investment income	0.1			0.1			217.6			—			217.8
Net realized investment losses	—			—			2.1			—			2.1
Other income	—			—			12.4			—			12.4
Net losses and loss expenses	—			—			(1,501.8		)	—			(1,501.8		)
Acquisition costs	—			—			(339.8		)	—			(339.8		)
General and administrative expenses	(18.7		)	0.2			(393.0		)	—			(411.5		)
Other expense	—			—			(6.8		)	—			(6.8		)
Amortization of intangible assets	—			—			(10.7		)	—			(10.7		)
Interest expense	—			(61.6		)	(2.1		)	—			(63.7		)
Foreign exchange gain (loss)	—			—			4.1			—			4.1
Income tax (expense) benefit	(0.1		)	—			9.2			—			9.1
Equity in earnings of consolidated subsidiaries	274.0			341.9			—			(615.9		)	—
NET INCOME (LOSS)	$	255.3		$	280.6		$	335.3		$	(615.9	)	$	255.3
Other comprehensive income (loss)	(2.3		)	—			(2.3		)	2.3			(2.3		)
COMPREHENSIVE INCOME (LOSS)	$	253.0		$	280.6		$	333.0		$	(613.6	)	$	253.0

F-76

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Year Ended December 31, 2015	Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
Net premiums earned	$	—		$	—		$	2,488.4		$	—		$	2,488.4
Net investment income	—			0.1			182.0			—			182.1
Net realized investment gains	—			—			(127.6		)	—			(127.6		)
Other income	—			—			3.5			—			3.5
Net losses and loss expenses	—			—			(1,586.3		)	—			(1,586.3		)
Acquisition costs	—			—			(375.4		)	—			(375.4		)
General and administrative expenses	(36.7		)	(0.5		)	(369.1		)	—			(406.3		)
Other expense	—			—			(6.2		)	—			(6.2		)
Amortization of intangible assets	—			—			(9.8		)	—			(9.8		)
Interest expense	—			(59.2		)	(2.2		)	—			(61.4		)
Foreign exchange gain (loss)	—			—			(11.3		)	—			(11.3		)
Income tax (expense) benefit	(0.1		)	—			(5.7		)	—			(5.8		)
Equity in earnings of consolidated subsidiaries	120.7			157.3			—			(278.0		)	—
NET INCOME (LOSS)	$	83.9		$	97.7		$	180.3		$	(278.0	)	$	83.9
Other comprehensive income (loss)	(9.3		)	—			(9.3		)	9.3			(9.3		)
COMPREHENSIVE INCOME (LOSS)	$	74.6		$	97.7		$	171.0		$	(268.7	)	$	74.6

F-77

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Year Ended December 31, 2014	Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
Net premiums earned	$	—		$	—		$	2,182.7		$	—		$	2,182.7
Net investment income	0.1			—			176.8			—			176.9
Net realized investment gains	—			—			89.0			—			89.0
Other income	—			—			2.1			—			2.1
Net losses and loss expenses	—			—			(1,199.2		)	—			(1,199.2		)
Acquisition costs	—			—			(295.1		)	—			(295.1		)
General and administrative expenses	(35.6		)	(3.1		)	(327.1		)	—			(365.7		)
Other expense	—			—			(8.6		)	—			(8.6		)
Amortization of intangible assets	—			—			(2.5		)	—			(2.5		)
Interest expense	—			(55.4		)	(2.3		)	—			(57.8		)
Foreign exchange gain (loss)	—			0.1			(1.1		)	—			(1.0		)
Income tax (expense) benefit	(0.1		)	—			(30.4		)	—			(30.5		)
Equity in earnings of consolidated subsidiaries	525.9			564.6			—			(1,090.5		)	—
NET INCOME (LOSS)	$	490.3		$	506.2		$	584.3		$	(1,090.5	)	$	490.3
Other comprehensive income (loss)	—			—			—			—			—
COMPREHENSIVE INCOME (LOSS)	$	490.3		$	506.2		$	584.3		$	(1,090.5	)	$	490.3

F-78

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Condensed Consolidating Statement of Cash Flows:

Year Ended December 31, 2016	Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	238.8		$	506.4		$	493.6		$	(841.0	)	$	397.8
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases trading securities	—			—			(5,423.7		)	—			(5,423.7		)
Purchases of other invested assets	—			—			(119.0		)	—			(119.0		)
Sales of trading securities	—			—			5,929.9			—			5,929.9
Sales of other invested assets	—			—			96.3			—			96.3
Net cash paid for acquisitions	—			—			(1.2		)	—			(1.2		)
Return of investment in subsidiary	—			250.0			—			(250.0		)	—
Other	—			—			(19.4		)	—			(19.4		)
Net cash provided by (used in) investing activities	—			250.0			462.9			(250.0		)	462.9
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Dividends paid	(91.5		)	—			—			—			(91.5		)
Intercompany dividends paid	—			(256.6		)	(584.4		)	841.0			—
Proceeds to parent	—			—			(250.0		)	250.0			—
Proceeds from the exercise of stock options	10.3			—			—			—			10.3
Share repurchases	(166.3		)	—			—			—			(166.3		)
Repayment of senior notes	—			(500.0		)	—			—			(500.0		)
Repayment of other long-term debt	—			—			(0.3		)	—			(0.3		)
Net cash provided by (used in) financing activities	(247.5		)	(756.6		)	(834.7		)	1,091.0			(747.8		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(8.7		)	(0.2		)	121.8			—			112.9
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	21.8			1.0			585.2			—			608.0
CASH AND CASH EQUIVALENTS, END OF YEAR	$	13.1		$	0.8		$	707.0		$	—		$	720.9

F-79

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Year Ended December 31, 2015	Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	339.6		$	377.7		$	598.1		$	(811.1	)	$	504.3
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of trading securities	—			—			(5,863.2		)	—			(5,863.2		)
Purchases of other invested assets	—			—			(126.7		)	—			(126.7		)
Sales of trading securities	—			—			5,328.8			—			5,328.8
Sales of other invested assets	—			—			161.3			—			161.3
Net cash paid for acquisitions	—			—			(124.4		)	—			(124.4		)
Capital contributions	—			(496.7		)	496.7			—			—
Other	—			—			(11.5		)	—			(11.5		)
Net cash provided by (used in) investing activities	—			(496.7		)	(139.0		)	—			(635.7		)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Dividends paid	(114.1		)	—			—			—			(114.1		)
Intercompany dividends paid	—			(378.4		)	(432.7		)	811.1			—
Proceeds from the exercise of stock options	10.1			—			—			—			10.1
Share repurchases	(246.4		)	—			—			—			(246.4		)
Proceeds from senior notes	—			496.7			—			—			496.7
Proceeds from other long-term debt	—			—			4.0			—			4.0
Repayment of other long-term debt	—			—			(0.2		)	—			(0.2		)
Net cash provided by (used in) financing activities	(350.4		)	118.3			(428.9		)	811.1			150.1
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(10.8		)	(0.7		)	30.2			—			18.7
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	32.6			1.7			555.0			—			589.3
CASH AND CASH EQUIVALENTS, END OF YEAR	$	21.8		$	1.0		$	585.2		$	—		$	608.0

F-80

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

Year Ended December 31, 2014	Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:	$	264.4		$	292.9		$	493.8		$	(643.3	)	$	407.8
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of trading securities	—			—			(7,630.0		)	—			(7,630.0		)
Purchases of other invested assets	—			—			(307.9		)	—			(307.9		)
Sales of trading securities	—			—			7,536.9			—			7,536.9
Sales of other invested assets	—			—			267.9			—			267.9
Net cash paid for acquisitions	—			—			(2.6		)	—			(2.6		)
Other	—			—			8.7			—			8.7
Net cash provided by (used in) investing activities	—			—			(127.0		)	—			(127.0		)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Dividends paid	(76.7		)	—			—			—			(76.7		)
Intercompany dividends paid	—			(294.0		)	(349.3		)	643.3			—
Proceeds from the exercise of stock options	10.0			—			—			—			10.0
Share repurchases	(175.9		)	—			—			—			(175.9		)
Proceeds from other long-term debt	—			—			19.2			—			19.2
Net cash provided by (used in) financing activities	(242.6		)	(294.0		)	(330.1		)	643.3			(223.4		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	21.8			(1.1		)	36.7			—			57.4
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	10.8			2.8			518.3			—			531.9
CASH AND CASH EQUIVALENTS, END OF YEAR	$	32.6		$	1.7		$	555.0		$	—		$	589.3

Notes to Parent Company Condensed Financial Information

a)Dividends

Allied World Switzerland received cash dividends from its subsidiaries of $256.6 million, $378.4 million and $294.0 million for the years ended December 31, 2016, 2015 and 2014, respectively. Such dividends are included in “cash flows provided by (used in) operating activities” in the condensed consolidating statement of cash flows.

F-81

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

20.UNAUDITED QUARTERLY FINANCIAL DATA

The following are the unaudited consolidated statements of income by quarter for the years ended December 31, 2016 and 2015:

	Quarter Ended
	December 31, 2016			September 30, 2016			June 30, 2016			March 31, 2016
REVENUES:
Gross premiums written	$	671.7		$	730.2		$	800.3		$	863.5
Premiums ceded	(226.4		)	(201.9		)	(222.2		)	(159.5		)
Net premiums written	445.3			528.3			578.1			704.0
Change in unearned premiums	131.7			55.7			24.8			(123.9		)
Net premiums earned	577.0			584.0			602.9			580.1
Net investment income	58.1			50.6			55.8			53.3
Net realized investment (losses) gains	(101.9		)	10.7			74.5			18.9
Other income	4.8			1.8			5.2			0.6
	538.0			647.1			738.4			652.9
EXPENSES:
Net losses and loss expenses	387.8			376.3			365.4			372.4
Acquisition costs	82.0			82.0			87.4			88.3
General and administrative expenses	106.1			104.2			104.7			96.4
Other expense	1.8			2.2			1.7			1.1
Amortization and impairment of intangible assets	3.2			2.5			2.5			2.5
Interest expense	10.4			13.5			19.9			20.0
Foreign exchange loss (gain)	0.8			1.0			(2.9		)	(3.0		)
	592.1			581.7			578.7			577.7
(Loss) income before income taxes	(54.1		)	65.4			159.7			75.2
Income tax (benefit) expense)	(13.3		)	(3.2		)	6.3			1.1
NET (LOSS) INCOME	$	(40.8	)	$	68.6		$	153.4		$	74.1
PER SHARE DATA
Basic (loss) earnings per share	$	(0.47	)	$	0.79		$	1.73		$	0.82
Diluted (loss) earnings per share	$	(0.47	)	$	0.77		$	1.70		$	0.81
Weighted average common shares outstanding	87,036,339			87,102,290			88,742,484			90,254,512
Weighted average common shares and common share equivalents outstanding	87,036,339			88,603,101			90,040,509			91,559,225

F-82

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in millions of United States dollars, except share, per share, percentage and ratio information)

	Quarter Ended
	December 31, 2015			September 30, 2015			June 30, 2015			March 31, 2015
REVENUES:
Gross premiums written	$	632.3		$	754.1		$	826.0		$	880.6
Premiums ceded	(167.5		)	(147.1		)	(222.3		)	(108.1		)
Net premiums written	464.8			607.0			603.7			772.5
Change in unearned premiums	158.0			43.7			42.7			(204.0		)
Net premiums earned	622.8			650.7			646.4			568.5
Net investment income	49.1			45.7			42.8			44.5
Net realized investment (losses) gains	(38.8		)	(113.6		)	(20.2		)	45.0
Other income	1.0			0.7			0.9			0.9
	634.1			583.5			669.9			658.9
EXPENSES:
Net losses and loss expenses	412.7			416.9			431.5			325.2
Acquisition costs	96.0			100.1			100.6			78.7
General and administrative expenses	95.0			105.8			108.4			97.1
Other expense	1.9			1.3			1.2			1.8
Amortization and impairment of intangible assets	3.7			2.7			2.8			0.6
Interest expense	18.1			14.5			14.5			14.3
Foreign exchange loss (gain)	0.9			(0.8		)	1.3			9.9
	628.3			640.5			660.3			527.6
Income (loss) before income taxes	5.8			(57.0		)	9.6			131.3
Income tax expense (benefit)	4.0			(5.3		)	0.1			7.0
NET INCOME (LOSS)	$	1.8		$	(51.7	)	$	9.5		$	124.3
PER SHARE DATA
Basic earnings (loss) per share	0.02			(0.57		)	0.10			1.30
Diluted earnings (loss) per share	0.02			(0.57		)	0.10			1.27
Weighted average common shares outstanding	90,934,107			90,882,511			92,441,730			95,935,551
Weighted average common shares and common share equivalents outstanding	92,422,422			90,882,511			93,984,226			97,577,029

F-83

EX-5.1

Exhibit 5.1

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in this Registration Statement on Form F-10 of Fairfax Financial Holdings Limited of our report dated March 9, 2018 relating to the financial statements and the effectiveness of internal control over financial reporting, which is filed as an exhibit to, and incorporated by reference in, Fairfax Financial Holdings Limited’s Annual Report on Form 40-F for the year ended December 31, 2017. We also consent to the reference to us under the heading, “Independent Registered Public Accounting Firms” in such Registration Statement.

/s/ PricewaterhouseCoopers LLP

Chartered Professional Accountants, Licensed Public Accountants

Toronto, Ontario, Canada

November 21, 2018

PricewaterhouseCoopers LLP

PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2

T: +1 416 863 1133, F: +1 416 365 8215, www.pwc.com/ca

“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

EX-5.2

Exhibit 5.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in this Registration Statement on Form F-10 of Fairfax Financial Holdings Limited of our report dated February 28, 2017, relating to the consolidated financial statements of Allied World Assurance Company Holdings, AG and subsidiaries as of December 31, 2016 and 2015 and for each of the three years in the period ended December 31, 2016, appearing in the business acquisition report dated August 2, 2017, which is part of this Registration Statement.

We also consent to the reference to us under the heading “Independent Registered Public Accounting Firms” in the prospectus included in this Registration Statement.

New York, New York

United States of America

November 21, 2018

EX-5.3

Exhibit 5.3

1114 Avenue of the Americas, 23rd Floor
New York, New York  10036.7703 USA P. 212.880.6000 | F. 212.682.0200 www.torys.com

November 21, 2018

TO: The Board of Directors of Fairfax Financial Holdings Limited

We hereby consent to the use of our name in the Registration Statement on Form F-10 filed by Fairfax Financial Holdings Limited on November 21, 2018, as such may thereafter be amended or supplemented, and in the short form prospectus contained therein, under the caption “Legal Matters”.  In giving such consent we do not thereby admit that we are in the category of persons whose consent is required by the United States Securities Act 1933, as amended or the rules and regulations promulgated thereunder.

Sincerely,

/s/ Torys LLP

EX-7.1

EXHIBIT 7.1

FAIRFAX FINANCIAL HOLDINGS LIMITED,

Issuer

and

BANK OF MONTREAL TRUST COMPANY,

U.S. Trustee

and

THE R-M TRUST COMPANY,

Canadian Trustee

Indenture

Dated as of December 1, 1993

Table of Contents

	Page
PARTIES	1
RECITALS OF THE CORPORATION	1

ARTICLE ONE Definitions and Other Provisions of General Application
SECTION 101.	Definitions	1
	Act	2
	Affiliate; control	2
	Authenticating Agent	2
	Authorized Newspaper	2
	Board of Directors	2
	Board Resolution	2
	Business Day	2
	Canadian Trustee	2
	Consolidated Subsidiary	2
	Conversion Date	3
	Conversion Event	3
	Corporate Trust Office	3
	corporation	3
	Corporation	3
	Corporation Request or Corporation Order	3
	Currency	3
	Debt	3
	Defaulted Interest	3
	ECU	3
	Election Date	3
	European Communities	3
	European Monetary System	4
	Event of Default	4
	Exchange Rate Agent	4
	Exchange Rate Officer’s Certificate	4
	Foreign Currency	4
	Government Obligations	4
	Holder	4
	Indenture	4
	interest	5
	Interest Payment Date	5
	Lien	5
	Market Exchange Rate	5
	Material Subsidiary	5
	Maturity	6
	Obligation	6
	Officers’ Certificate	6
	Opinion of Counsel	6

Note:  This table of contents shall not, for any purpose, be deemed to be a part of the Indenture.

		Page
	Original Issue Discount Security	6
	Outstanding	6
	Paying Agent	7
	Person	7
	Place of Payment	7
	Predecessor Security	7
	Purchase Money Lien	7
	Redemption Date	8
	Redemption Price	8
	Regular Record Date	8
	Repayment Date	8
	Repayment Price	8
	Responsible Officer	8
	Restricted Subsidiary	8
	Securities	8
	Security Register and Security Registrar	8
	Special Record Date	9
	Stated Maturity	9
	Subsidiary	9
	Trust Indenture Act or TIA	9
	Trust Indenture Legislation	9
	Trustee or Trustees	9
	U.S. Dollar or U.S. $	9
	U.S. Dollar Equivalent of the Currency Unit	9
	U.S. Dollar Equivalent of the Foreign Currency	9
	U.S. Trustee	9
	Valuation Date	9
	Vice President	10
	Voting Stock	10
	Yield to Maturity	10
SECTION 102.	Compliance Certificates and Opinions	10
SECTION 103.	Form of Documents Delivered to Trustees	10
SECTION 104.	Acts of Holders	11
SECTION 105.	Notices, Etc. to Trustees and Corporation	12
SECTION 106.	Notice to Holders; Waiver	12
SECTION 107.	Effect of Headings and Table of Contents	13
SECTION 108.	Successors and Assigns	13
SECTION 109.	Separability Clause	13
SECTION 110.	Benefits of Indenture	13
SECTION 111.	Governing Law	13
SECTION 112.	Legal Holidays	13

ii

		Page
ARTICLE TWO Security Forms
SECTION 201.	Forms Generally	14
SECTION 202.	Form of Trustee’s Certificate of Authentication	14
SECTION 203.	Securities Issuable in Global Form	15
ARTICLE THREE The Securities
SECTION 301.	Amount Unlimited; Issuable in Series	16
SECTION 302.	Denominations	18
SECTION 303.	Execution, Authentication, Delivery and Dating	18
SECTION 304.	Temporary Securities	20
SECTION 305.	Registration, Registration of Transfer and Exchange	21
SECTION 306.	Mutilated, Destroyed, Lost and Stolen Securities	22
SECTION 307.	Payment of Interest; Interest Rights Preserved; Optional Interest Reset	23
SECTION 308.	Optional Extension of Maturity	25
SECTION 309	Persons Deemed Owners	26
SECTION 310.	Cancellation	26
SECTION 311.	Computation of Interest	27
SECTION 312.	Currency and Manner of Payments in Respect of Securities	27
SECTION 313.	Appointment and Resignation of Successor Exchange Rate Agent	30
ARTICLE FOUR Satisfaction and Discharge
SECTION 401.	Satisfaction and Discharge of Indenture	31
SECTION 402.	Application of Trust Money	32
ARTICLE FIVE Remedies
SECTION 501.	Events of Default	32
SECTION 502.	Acceleration of Maturity; Rescission and Annulment	34
SECTION 503.	Collection of Indebtedness and Suits for Enforcement by Trustees	35
SECTION 504.	Trustees May File Proofs of Claim	36
SECTION 505.	Trustees May Enforce Claims Without Possession of Securities	37
SECTION 506.	Application of Money Collected	37
SECTION 507.	Limitation on Suits	37
SECTION 508.	Unconditional Right of Holders to Receive Principal, Premium and Interest	38

iii

		Page
SECTION 509.	Restoration of Rights and Remedies	38
SECTION 510.	Rights and Remedies Cumulative	39
SECTION 511.	Delay or Omission Not Waiver	39
SECTION 512.	Control by Holders	39
SECTION 513.	Waiver of Past Defaults	39
ARTICLE SIX The Trustees
SECTION 601.	Joint Trustees	40
SECTION 602	Duty of Trustees	40
SECTION 603.	Notice of Defaults	40
SECTION 604.	Certain Rights of Trustees	41
SECTION 605.	Trustees Not Responsible for Recitals or Issuance of Securities	42
SECTION 606.	May Hold Securities	42
SECTION 607.	Money Held in Trust	42
SECTION 608.	Compensation and Reimbursement	42
SECTION 609.	Conflicting Interests	43
SECTION 610.	Corporate Trustee Required; Eligibility	43
SECTION 611.	Resignation and Removal; Appointment of Successor	44
SECTION 612.	Acceptance of Appointment by Successor	45
SECTION 613.	Merger, Conversion, Amalgamation, Consolidation or Succession to Business	46
SECTION 614.	Appointment of Authenticating Agent	47
SECTION 615.	Acceptance of Trusts	48
ARTICLE SEVEN Holders’ Lists
SECTION 701.	Disclosure of Names and Addresses of Holders	48
ARTICLE EIGHT Amalgamation, Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801.	Corporation May Consolidate, etc., Only on Certain Terms	49
SECTION 802.	Successor Person Substituted	49
ARTICLE NINE Supplemental Indentures
SECTION 901.	Supplemental Indentures Without Consent of Holders	50
SECTION 902.	Supplemental Indentures with Consent of Holders	51
SECTION 903.	Execution of Supplemental Indentures	52
SECTION 904.	Effect of Supplemental Indentures	52
SECTION 905.	Conformity with Trust Indenture Legislation	52

iv

		Page
SECTION 906.	Reference in Securities to Supplemental Indentures	52
SECTION 907.	Notice of Supplemental Indentures	52
ARTICLE TEN Covenants
SECTION 1001.	Payment of Principal, Premium, if any, and Interest	53
SECTION 1002.	Maintenance of Office or Agency	53
SECTION 1003.	Money for Securities Payments to Be Held in Trust	53
SECTION 1004.	Corporate Existence	55
SECTION 1005.	Limitation on Liens on Capital Stock of Restricted Subsidiaries	55
SECTION 1006.	Waiver of Certain Covenants	55
ARTICLE ELEVEN Redemption of Securities
SECTION 1101.	Applicability of Article	56
SECTION 1102.	Election to Redeem; Notice to Trustees	56
SECTION 1103.	Selection by Trustees of Securities to Be Redeemed	56
SECTION 1104.	Notice of Redemption	56
SECTION 1105.	Deposit of Redemption Price	57
SECTION 1106.	Securities Payable on Redemption Date	57
SECTION 1107.	Securities Redeemed in Part	58
ARTICLE TWELVE Sinking Funds
SECTION 1201.	Applicability of Article	58
SECTION 1202.	Satisfaction of Sinking Fund Payments with Securities	58
SECTION 1203.	Redemption of Securities for Sinking Fund	59
ARTICLE THIRTEEN Repayment at Option of Holders
SECTION 1301.	Applicability of Article	60
SECTION 1302.	Repayment of Securities	60
SECTION 1303.	Exercise of Option	60
SECTION 1304.	When Securities Presented for Repayment Become Due and Payable	61
SECTION 1305.	Securities Repaid in Part	61
ARTICLE FOURTEEN Defeasance and Covenant Defeasance
SECTION 1401.	Corporation’s Option to Effect Defeasance or Covenant Defeasance	61

v

		Page
SECTION 1402.	Defeasance and Discharge	61
SECTION 1403.	Covenant Defeasance	62
SECTION 1404.	Conditions to Defeasance or Covenant Defeasance	62
SECTION 1405.	Deposited Money and Government Obligations to Be Held in Trust; Other Miscellaneous Provisions	64
ARTICLE FIFTEEN Submission to Jurisdiction
SECTION 1501.	Agent for Service; Submission to Jurisdiction; Waiver of Immunities	65
TESTIMONIUM		67
SIGNATURES AND SEALS		67

vi

INDENTURE, dated as of December 1, 1993, among FAIRFAX FINANCIAL HOLDINGS LIMITED, a corporation duly organized and existing under the laws of Canada (herein called the “Corporation”), having its principal office at 95 Wellington Street West, Suite 800, Toronto, Ontario M5J 2N7, Canada, THE R-M TRUST COMPANY, a trust company duly incorporated and existing under the laws of Canada, as Canadian Trustee (the “Canadian Trustee”), and BANK OF MONTREAL TRUST COMPANY, a corporation duly organized and existing under the laws of the State of New York, as United States Trustee (the “U.S. Trustee” and, together with the Canadian Trustee, sometimes called the “Trustee” or the “Trustees”).

RECITALS OF THE CORPORATION

The Corporation has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness (herein called the “Securities”), to be issued in one or more series as in this Indenture provided.

This Indenture is subject to provisions of the Canada Business Corporations Act and the Trust Indenture Act of 1939, as amended, to the extent applicable under Rule 4d-9 thereunder, and shall, to the extent applicable, be governed by such provisions and by other applicable provisions of Trust Indenture Legislation.

All things necessary to make this Indenture a valid agreement of the Corporation, in accordance with its terms, have been done.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of series thereof, as follows:

ARTICLE ONE

DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION

SECTION 101.   Definitions.  For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:

(1)     the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular;

(2)     all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in Canada, and, except as otherwise herein expressly provided, the term “generally accepted accounting principles” with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted in Canada at the date of such computation; and

(3)     the words “herein”, “hereof” and “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.

Certain terms, used principally in Articles Three, Six and Fourteen are defined in those Articles.

“Act”, when used with respect to any Holder, has the meaning specified in Section 104.

“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Authenticating Agent” means any Person authorized by a Trustee to act on behalf of a Trustee to authenticate Securities.

“Authorized Newspaper” means a newspaper, in the English language or in an official language of the country of publication, customarily published on each Business Day, whether or not published on Saturdays, Sundays or holidays, and of general circulation in each place in connection with which the term is used or in the financial community of each such place. Where successive publications are required to be made in Authorized Newspapers, the successive publications may be made in the same or in different newspapers in the same city meeting the foregoing requirements and in each case on any Business Day.

“Board of Directors” means either the board of directors of the Corporation or any duly authorized committee of that board.

“Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Corporation to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustees.

“Business Day”, when used with respect to any Place of Payment or any other particular location referred to in this Indenture or in the Securities, means, unless otherwise specified with respect to any Securities pursuant to Section 301, each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment or other location are authorized or obligated by law or executive order to close.

“Canadian Trustee” means The R-M Trust Company and its successors hereunder.

“Consolidated Subsidiary” means, at any date, with respect to the Corporation, any Subsidiary or other entity the accounts of which are consolidated with those of the Corporation in the consolidated financial statements of the Corporation as of such date in accordance with Canadian generally accepted accounting principles.

2

“Conversion Date” has the meaning specified in Section 312(d).

“Conversion Event” means the cessation of use of (i) a Foreign Currency both by the government of the country which issued such Currency and by a central bank or other public institution of or within the international banking community for the settlement of transactions, (ii) the ECU both within the European Monetary System and for the settlement of transactions by public institutions of or within the European Communities or (iii) any currency unit (or composite currency) other than the ECU for the purposes for which it was established.

“Corporate Trust Office”, with respect to the Canadian Trustee, means the principal office of the Canadian Trustee in Toronto, Ontario at which at any particular time its corporate trust business shall be administered, which office on the date hereof is located, for delivery purposes, at 393 University Avenue (5th Floor), Toronto, Ontario, Canada M5G 1E5, Attention: Vice President, Corporate Trust, and, for mailing purposes, at Post Office Box 7010, Adelaide Street Postal Station, Toronto, Ontario Canada M5C 2W9, Attention: Vice President, Corporate Trust; and, with respect to the U.S. Trustee, means the principal office of the U.S. Trustee in the Borough of Manhattan, The City of New York, New York, at which at any particular time its corporate trust business shall be administered, which office on the date hereof is located at 77 Water Street, New York, New York 10005.

“corporation” includes corporations, associations, companies and business trusts.

“Corporation” means the Person named as the “Corporation” in the first paragraph of this Indenture until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Corporation” shall mean such successor Person.

“Corporation Order” or “Corporation Request” means a written order or request signed in the name of the Corporation by its Chairman, its President, any Vice President, its Treasurer or an Assistant Treasurer, and delivered to a Trustee.

“Currency” means any currency or currencies, composite currency or currency unit or currency units, including, without limitation, the ECU, issued by the government of one or more countries or by any recognized confederation or association of such governments.

“Debt” means notes, bonds, debentures or other similar evidences of indebtedness for money borrowed.

“Defaulted Interest” has the meaning specified in Section 307.

“ECU” means the European Currency Unit as defined and revised from time to time by the Council of the European Communities.

“Election Date” has the meaning specified in Section 312(h).

“European Communities” means the European Economic Community, the European Coal and Steel Community and the European Atomic Energy Community.

3

“European Monetary System” means the European Monetary System established by the Resolution of December 5, 1978 of the Council of the European Communities.

“Event of Default” has the meaning specified in Section 501.

“Exchange Rate Agent” means, with respect to Securities of or within any series, unless otherwise specified with respect to any Securities pursuant to Section 301, a New York Clearing House bank, designated pursuant to Section 301 or Section 313.

“Exchange Rate Officer’s Certificate” means a tested telex or a certificate setting forth (i) the applicable Market Exchange Rate and (ii) the U.S. Dollar or Foreign Currency amounts of principal (and premium, if any) and interest, if any (on an aggregate basis and on the basis of a Security having the lowest denomination principal amount determined in accordance with Section 302 in the relevant Currency), payable with respect to a Security of any series on the basis of such Market Exchange Rate, sent (in the case of a telex) or signed (in the case of a certificate) by the Treasurer, any Vice President or any Assistant Treasurer of the Corporation.

“Foreign Currency” means any Currency other than Currency of the United States.

“Government Obligations” means, unless otherwise specified with respect to any series of Securities pursuant to Section 301, securities which are (i) direct obligations of the government which issued the Currency in which the Securities of a particular series are payable or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the government which issued the Currency in which the Securities of such series are payable, the payment of which is unconditionally guaranteed by such government, which, in either case, are full faith and credit obligations of such government payable in such Currency and are not callable or redeemable at the option of the issuer thereof and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such Government Obligation or a specific payment of interest on or principal of any such Government Obligation held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of interest or principal of the Government Obligation evidenced by such depository receipt.

“Holder” means the Person in whose name a Security is registered in the Security Register.

“Indenture” means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, and shall include the terms of particular series of Securities established as contemplated by Section 301; provided, however, that, if at any time more than one Canadian Trustee and one U.S. Trustee are acting as Trustees under this instrument, “Indenture” shall mean, with respect to any one or more series of Securities for which such Person is Trustee, this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into

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pursuant to the applicable provisions hereof and shall include the terms of particular series of Securities for which such Person is Trustee established as contemplated by Section 301, exclusive, however, of any provisions or terms which relate solely to other series of Securities for which such Person is not Trustee, regardless of when such terms or provisions were adopted, and exclusive of any provisions or terms adopted by means of one or more indentures supplemental hereto executed and delivered after such Person had become such Trustee but to which such Person, as such Trustee, was not a party.

“interest”, when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity at the rate prescribed in such Original Issue Discount Security.

“Interest Payment Date”, when used with respect to any Security, means the Stated Maturity of an instalment of interest on such Security.

“Lien” means any mortgage, pledge, hypothecation, lien, encumbrance, charge or security interest of any kind.

“Market Exchange Rate” means, unless otherwise specified with respect to any Securities pursuant to Section 301, (i) for any conversion involving a currency unit on the one hand and U.S. Dollars or any Foreign Currency on the other, the exchange rate between the relevant currency unit and U.S. Dollars or such Foreign Currency calculated by the method specified pursuant to Section 301 for the Securities of the relevant series, (ii) for any conversion of U.S. Dollars into any Foreign Currency, the noon (New York City time) buying rate for such Foreign Currency for cable transfers quoted in New York City as certified for customs purposes by the Federal Reserve Bank of New York and (iii) for any conversion of one Foreign Currency into U.S. Dollars or another Foreign Currency, the spot rate at noon local time in the relevant market at which, in accordance with normal banking procedures, the U.S. Dollars or Foreign Currency into which conversion is being made could be purchased with the Foreign Currency from which conversion is being made from major banks located in either New York City, London or any other principal market for U.S. Dollars or such purchased Foreign Currency, in each case determined by the Exchange Rate Agent. Unless otherwise specified with respect to any Securities pursuant to Section 301, in the event of the unavailability of any of the exchange rates provided for in the foregoing clauses (i), (ii) and (iii) the Exchange Rate Agent shall use, in its sole discretion and without liability on its part, such quotation of the Federal Reserve Bank of New York as of the most recent available date, or quotations from one or more major banks in New York City, London or other principal market for such Currency in question, or such other quotations as the Exchange Rate Agent shall deem appropriate. Unless otherwise specified by the Exchange Rate Agent, if there is more than one market for dealing in any Currency by reason of foreign exchange regulations or otherwise, the market to be used in respect of such Currency shall be that upon which a nonresident issuer of securities designated in such Currency would purchase such Currency in order to make payments in respect of such securities.

“Material Subsidiary” means, at any date, any Consolidated Subsidiary of the Corporation whose total assets after excluding intercompany accounts are in excess of 10% of the total assets of the Corporation and its Consolidated Subsidiaries, with any determination being made as at the end of the most recently completed fiscal year for which consolidated

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financial statements have been prepared, except to the extent that on such date the principal financial officers of the Corporation have actual knowledge that such assets are more or less than 10% of the total assets of the Corporation and its Consolidated Subsidiaries.

“Maturity”, when used with respect to any Security, means the date on which the principal of such Security or an instalment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, notice of redemption, notice of option to elect repayment or otherwise.

“Obligation” means indebtedness for money borrowed or indebtedness evidenced by a bond, note, debenture or other evidence of indebtedness.

“Officers’ Certificate” means a certificate signed by the Chairman, the President or a Vice President, together with any other of the foregoing, including another Vice President, or the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Corporation, and delivered to the Trustees.

“Opinion of Counsel” means a written opinion of counsel containing the information specified in Section 102, who may be counsel for the Corporation and who shall be acceptable to the Trustees.

“Original Issue Discount Security” means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502.

“Outstanding”, when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except:

(i)       Securities theretofore cancelled by a Trustee or delivered to a Trustee for cancellation;

(ii)      Securities, or portions thereof, for whose payment or redemption or repayment at the option of the Holder money in the necessary amount has been theretofore deposited with a Trustee or any Paying Agent (other than the Corporation) in trust or set aside and segregated in trust by the Corporation (if the Corporation shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustees has been made;

(iii)     Securities, except to the extent provided in Sections 1402 and 1403, with respect to which the Corporation has effected defeasance and/or covenant defeasance as provided in Article Fourteen; and

(iv)     Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented proof satisfactory to the Trustees that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Corporation;

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provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, (i) the principal amount of an Original Issue Discount Security that may be counted in making such determination or calculation and that shall be deemed to be Outstanding for such purpose shall be equal to the amount of principal thereof that would be (or shall have been declared to be) due and payable, at the time of such determination, upon a declaration of acceleration of the maturity thereof pursuant to Section 502, (ii) the principal amount of any Security denominated in a Foreign Currency that may be counted in making such determination or calculation and that shall be deemed Outstanding for such purpose shall be equal to the U.S. Dollar equivalent, determined as of the date such Security is originally issued by the Corporation as set forth in an Exchange Rate Officer’s Certificate delivered to the Trustees, of the principal amount (or, in the case of an Original Issue Discount Security, the U.S. Dollar equivalent as of such date of original issuance of the amount determined as provided in clause (i) above), of such Security and (iii) Securities owned by the Corporation or any other obligor upon the Securities or any Affiliate of the Corporation or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether a Trustee shall be protected in making such calculation or in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which are certified to a Trustee as so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustees the pledgee’s right so to act with respect to such Securities and that the pledgee is not the Corporation or any other obligor upon the Securities or any Affiliate of the Corporation or of such other obligor.

“Paying Agent” means any Person authorized by the Corporation to pay the principal of (or premium, if any) or interest on any Securities on behalf of the Corporation.

“Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Place of Payment” means, when used with respect to the Securities of or within any series, the place or places where the principal of (and premium, if any) and interest on such Securities are payable as specified as contemplated by Sections 301 and 1002.

“Predecessor Security” of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security.

“Purchase Money Lien” means (i) any Lien upon any capital stock of any Restricted Subsidiary acquired after the date hereof if such Purchase Money Lien is for the purpose of financing, and does not exceed, the cost to the Corporation or any Subsidiary of acquiring the capital stock of such Restricted Subsidiary and such financing is effected concurrently with, or within six months after, the date of such acquisition, and (ii) any extension,

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renewal or refinancing of any Purchase Money Lien so long as the principal amount of obligations secured thereby shall not exceed the original principal amount of obligations so secured at the time of such extension, renewal or refinancing.

“Redemption Date”, when used with respect to any Security to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture.

“Redemption Price”, when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture.

“Regular Record Date” for the interest payable on any Interest Payment Date on the Securities of or within any series means the date specified for that purpose as contemplated by Section 301.

“Repayment Date” means, when used with respect to any Security to be repaid at the option of the Holder, the date fixed for such repayment by or pursuant to this Indenture.

“Repayment Price” means, when used with respect to any Security to be repaid at the option of the Holder, the price at which it is to be repaid by or pursuant to this Indenture.

“Responsible Officer”, when used with respect to either Trustee, means the chairman or any vice-chairman of the board of directors, the chairman or any vice-chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer of such Trustee customarily performing functions similar to those performed by any of the above-designated officers, and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject.

“Restricted Subsidiary” means any Subsidiary that is a licensed insurance company, other than any licensed insurance company that the Board of Directors, in good faith, by Board Resolution, determines is not, individually or together with any other licensed insurance company as to which a similar determination has been made, material to the business of the Corporation and its Subsidiaries, considered as a whole.

“Securities” has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture; provided, however, that if at any time there is more than one Canadian Trustee and one U.S. Trustee under this Indenture, “Securities” with respect to the Indenture as to which such Person is Trustee shall have the meaning stated in the first recital of this Indenture and shall more particularly mean Securities authenticated and delivered under this Indenture, exclusive, however, of Securities of any series as to which such Person is not Trustee.

“Security Register” and “Security Registrar” have the respective meanings specified in Section 305.

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“Special Record Date” for the payment of any Defaulted Interest on the Securities of or within any series means a date fixed by the Trustees pursuant to Section 307.

“Stated Maturity”, when used with respect to any Security or any instalment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such instalment of principal or interest is due and payable, as such date may be extended pursuant to the provisions of Section 308.

“Subsidiary” means a corporation or business trust, a majority of the outstanding Voting Stock of which is owned, directly or indirectly, by the Corporation or one or more other Subsidiaries, or by the Corporation and one or more other Subsidiaries.

“Trust Indenture Act” or “TIA” means the Trust Indenture Act of 1939 as in force at the date as of which this Indenture was executed, except as provided in Section 905.

“Trust Indenture Legislation” means, at any time, statutory provisions relating to trust indentures and the rights, duties, and obligations of trustees under the trust indentures and of corporations issuing debt obligations under trust indentures to the extent that such provisions are at such time in force and applicable to this Indenture, and at the date of this Indenture means (i) the applicable provisions of the Canada Business Corporations Act and the regulations thereunder as amended or re-enacted from time to time and (ii) the Trust Indenture Act and regulations thereunder, but only to the extent applicable under Rule 4d-9 under the Trust Indenture Act.

“Trustee” or “Trustees” means the Persons named as the “Canadian Trustee” and the “U.S. Trustee” in the first paragraph of this instrument, until a successor of either or both of them shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Trustee” and “Trustees” shall refer instead to each Person who is then a Trustee hereunder. If the Canadian Trustee resigns or is removed and, pursuant Section 610, the Corporation is not required to appoint a successor Trustee to the Canadian Trustee, “Trustee”, “Trustees” and any reference to “both of the Trustees” shall mean the Person named as the U.S. Trustee or any successor thereto appointed pursuant to the applicable provisions of this Indenture.

“U.S. Dollar” or “U.S.$” means a dollar or other equivalent unit in such coin or currency of the United States of America as at the time shall be legal tender for the payment of public and private debts.

“U.S. Dollar Equivalent of the Currency Unit” has the meaning specified in Section 312(g).

“U.S. Dollar Equivalent of the Foreign Currency” has the meaning specified in Section 312(f).

“U.S. Trustee” means Bank of Montreal Trust Company and its successors hereunder.

“Valuation Date” has the meaning specified in Section 312(c).

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“Vice President”, when used with respect to the Corporation or either Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title “vice president”.

“Voting Stock” means stock having voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency.

“Yield to Maturity” means the yield to maturity, computed at the time of issuance of a Security (or, if applicable, at the most recent redetermination of interest on such Security) and as set forth in such Security in accordance with generally accepted United States bond yield computation principles.

SECTION 102.   Compliance Certificates and Opinions.  Upon any application or request by the Corporation to either Trustee to take any action under any provision of this Indenture, if required by this Indenture or requested by such Trustee, the Corporation shall furnish to the applicable Trustee an Officers’ Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished.

Each such Officers’ Certificate or Opinion of Counsel with respect to compliance with a covenant or condition provided for in this Indenture shall include:

(1)     a statement that each individual signing such certificate or opinion has read and understands such covenant or condition and the definitions herein relating thereto;

(2)     a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

(3)     a statement that, in the opinion of each such individual, he has made such examination or investigation as he believes necessary to enable him to make the statements or give the opinions contained or expressed therein; and

(4)     a statement as to whether, in the opinion of each such individual, such covenant or condition has been complied with.

SECTION 103.   Form of Documents Delivered to Trustees.  In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.

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Any certificate or opinion of an officer of the Corporation may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Corporation stating that the information with respect to such factual matters is in the possession of the Corporation, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.

Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.

SECTION 104.   Acts of Holders.  (a)  Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders of the Outstanding Securities of all series or one or more series, as the case may be, may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustees and, where it is hereby expressly required, to the Corporation. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “Act” of the Holders signing such instrument or instruments or so voting at any such meeting. Proof of execution of any such instrument or of a writing appointing any such agent, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustees and the Corporation, if made in the manner provided in this Section.

(b)     The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustees deem sufficient.

(c)     The principal amount and serial numbers of Securities held by any Person, and the date of holding the same, shall be proved by the Security Register.

(d)     If the Corporation shall solicit from the Holders of Securities any request, demand, authorization, direction, notice, consent, waiver or other Act, the Corporation may, at its option, by or pursuant to Board Resolution, fix in advance a record date for the determination of

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Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Corporation shall have no obligation to do so. Notwithstanding TIA Section 316(c), such record date shall be the record date specified in or pursuant to such Board Resolution, which shall be a date not earlier than the date 30 days prior to the first solicitation of Holders generally in connection therewith and not later than the date such solicitation is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Securities shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than eleven months after the record date.

(e)     Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by either Trustee or the Corporation in reliance thereon, whether or not notation of such action is made upon such Security.

SECTION 105.   Notices, Etc. to Trustees and Corporation.  Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other documents provided or permitted by this Indenture to be made upon, given or furnished to, or filed with,

(1)     the U.S. Trustee by the Canadian Trustee, any Holder or the Corporation shall be sufficient for every purpose hereunder if made, given, furnished or delivered, in writing to or with the U.S. Trustee at its Corporate Trust Office; or

(2)     the Canadian Trustee by the U.S. Trustee, any Holder or the Corporation shall be sufficient for every purpose hereunder if made, given, furnished or delivered, in writing to or with the Canadian Trustee at its Corporate Trust Office; and

(3)     the Corporation by either Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Corporation addressed to it at the address of its principal office specified in the first paragraph of this Indenture and marked for the attention of the Secretary, or at any other address previously furnished in writing to the Trustees by the Corporation.

SECTION 106.   Notice to Holders; Waiver.  Where this Indenture provides for notice of any event to Holders of Securities by the Corporation or either Trustee, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each such Holder, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders of Securities is given by mail, neither

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the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders of Securities. Any notice mailed to a Holder in the manner herein prescribed shall be conclusively deemed to have been received by such Holder, whether or not such Holder actually receives such notice.

In case, by reason of the suspension of or irregularities in regular mail service or by reason of any other cause, it shall be impractical to mail notice of any event to Holders of Securities when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the applicable Trustee shall be deemed to be sufficient giving of such notice for every purpose hereunder.

Any request, demand, authorization, direction, notice, consent or waiver required or permitted under this Indenture shall be in the English language, except that any published notice may be in an official language of the country of publication.

Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with either Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.

SECTION 107.   Effect of Headings and Table of Contents.  The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

SECTION 108.   Successors and Assigns.  All covenants and agreements in this Indenture by the Corporation shall bind its successors and assigns, whether so expressed or not.

SECTION 109.   Separability Clause.  In case any provision in this Indenture or in any Security shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

SECTION 110.   Benefits of Indenture.  Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto, any Authenticating Agent, any Paying Agent, any Securities Registrar and their successors hereunder and the Holders of Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture.

SECTION 111.   Governing Law.  This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York. This Indenture is subject to the provisions of Trust Indenture Legislation and shall, to the extent applicable, be governed by such provisions.

SECTION 112.   Legal Holidays.  In any case where any Interest Payment Date, Redemption Date, sinking fund payment date or Stated Maturity or Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of any Security other than a provision in the Securities of any series which specifically states that such provision shall apply in lieu of this Section) payment of interest or

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principal (and premium, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date or sinking fund payment date, or at the Stated Maturity or Maturity; provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date, sinking fund payment date, Stated Maturity or Maturity, as the case may be.

ARTICLE TWO

SECURITY FORMS

SECTION 201.   Forms Generally.  The Securities of each series shall be in substantially the forms as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. If the forms of Securities of any series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Corporation and delivered to the applicable Trustee at or prior to the delivery of the Corporation Order contemplated by Section 303 for the authentication and delivery of such Securities.

The Trustee’s certificate of authentication on all Securities shall be in substantially the form set forth in this Article.

The definitive Securities shall be printed, lithographed or engraved on steel-engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities.

SECTION 202.   Form of Trustee’s Certificate of Authentication.  Subject to Section 612, the Trustee’s certificate of authentication shall be in substantially the following form:

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

(Certificate of Authentication may be
executed by either Trustee).

This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.

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THE R-M TRUST COMPANY,		BANK OF MONTREAL TRUST COMPANY,
as Canadian Trustee		as U.S. Trustee
By:		By:
	Authorized Signature		Authorized Signature

SECTION 203.   Securities Issuable in Global Form.  If Securities of or within a series are specified to be issuable in global form, as contemplated by Section 301, then, notwithstanding clause (8) of Section 301, any such Security shall represent such of the Outstanding Securities of such series as shall be specified therein and may provide that it shall represent the aggregate amount of Outstanding Securities of such series from time to time endorsed thereon and that the aggregate amount of Outstanding Securities of such series represented thereby may from time to time be increased or decreased to reflect exchanges. Any endorsement of a Security in global form to reflect the amount, or any increase or decrease in the amount, of Outstanding Securities represented thereby shall be made by either Trustee in such manner and upon instructions given by such Person or Persons as shall be specified therein or in the Corporation Order to be delivered to such Trustee pursuant to Section 303 or Section 304. Subject to the provisions of Section 303 and, if applicable, Section 304, such Trustee shall deliver and redeliver any Security in permanent global form in the manner and upon instructions given by the Person or Persons specified therein or in the applicable Corporation Order. If a Corporation Order pursuant to Section 303 or Section 304 has been, or simultaneously is, delivered, any instructions by the Corporation with respect to endorsement or delivery or redelivery of a Security in global form shall be in writing but need not comply with Section 102 and need not be accompanied by an Opinion of Counsel.

The provisions of the last sentence of Section 303 shall apply to any Security represented by a Security in global form if such Security was never issued and sold by the Corporation and the Corporation delivers to either Trustee the Security in global form together with written instructions (which need not comply with Section 102 and need not be accompanied by an Opinion of Counsel) with regard to the reduction in the principal amount of Securities represented thereby, together with the written statement contemplated by the last sentence of Section 303.

Notwithstanding the provisions of Section 307, unless otherwise specified as contemplated by Section 301, payment of principal of and any premium and interest on any Security in permanent global form shall be made to the Person or Persons specified therein.

Notwithstanding the provisions of Section 309 and except as provided in the preceding paragraph, the Corporation, the Trustees and any agent of the Corporation and the Trustees shall treat the Registered Holder of any global Security as the Holder of the Outstanding Securities represented thereby for all purposes.

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ARTICLE THREE

THE SECURITIES

SECTION 301.   Amount Unlimited; Issuable in Series.  The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited.

The Securities may be issued in one or more series. There shall be established in one or more Board Resolutions or pursuant to authority granted by one or more Board Resolutions and, subject to Section 303, set forth in, or determined in the manner provided in, an Officers’ Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series, any or all of the following, as applicable (each of which (except for the matters set forth in clauses (1), (2) and (17) below), if so provided, may be determined from time to time by the Corporation with respect to unissued Securities of the series and set forth in such Securities of the series when issued from time to time):

(1)     the title of the Securities of the series (which shall distinguish the Securities of the series from all other series of Securities);

(2)     any limit upon the aggregate principal amount of the Securities of the series that may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 304, 305, 306, 906, 1107 or 1305);

(3)     the date or dates, or the method or methods by which such date or dates will be determined or extended, on which the principal of the Securities of the series is payable;

(4)     the rate or rates at which the Securities of the series shall bear interest, if any, or the method or methods by which such rate or rates shall be determined, the date or dates from which such interest shall accrue, or the method or methods by which such date or dates shall be determined, the Interest Payment Dates on which such interest shall be payable and the Regular Record Date, if any, for the interest payable on any Security on any Interest Payment Date, or the method or methods by which such date or dates shall be determined, and the basis upon which interest shall be calculated if other than on the basis of a 360-day year of twelve 30-day months;

(5)     the place or places, if any, other than or in addition to the Borough of Manhattan, The City of New York, where the principal of (and premium, if any) and any interest on Securities of the series shall be payable, any Securities of the series may be surrendered for registration of transfer, Securities of the series may be surrendered for exchange and, if different than the location specified in Section 105, the place or places where notices or demands to or upon the Corporation in respect of the Securities of the series and this Indenture may be served;

(6)     the period or periods within which, the price or prices at which, the Currency in which, and other terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Corporation, if the Corporation is to have that option;

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(7)     the obligation, if any, of the Corporation to redeem, repay or purchase Securities of the series pursuant to any sinking fund or analogous provision or at the option of a Holder thereof, and the period or periods within which, the price or prices at which, the Currency in which, and other terms and conditions upon which Securities of the series shall be redeemed, repaid or purchased, in whole or in part, pursuant to such obligation;

(8)     if other than denominations of U.S.$1,000 and any integral multiple thereof, the denominations in which any Securities of the series shall be issuable;

(9)     if other than the Corporation or one of the Trustees, the identity of each Security Registrar and/or Paying Agent;

(10)     if other than the principal amount thereof, the portion of the principal amount of Securities of the series that shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 502 or the method by which such portion shall be determined;

(11)     if other than U.S. Dollars, the Currency in which payment of the principal of (and premium, if any) or interest, if any, on the Securities of the series shall be payable or in which the Securities of the series shall be denominated and the particular provisions applicable thereto in accordance with, in addition to or in lieu of any of the provisions of Section 312;

(12)     whether the amount of payments of principal of (and premium, if any) or interest on the Securities of the series may be determined with reference to a formula or other method, and the manner in which such amounts shall be determined;

(13)     whether the principal of (and premium, if any) and interest, if any, on the Securities of the series are to be payable, at the election of the Corporation or a Holder thereof, in a Currency other than that in which such Securities are denominated or stated to be payable, the period or periods within which (including the Election Date), and the terms and conditions upon which, such election may be made, and the time and manner of determining the exchange rate between the Currency in which such Securities are denominated or stated to be payable and the Currency in which such Securities are to be so payable, in each case in accordance with, in addition to or in lieu of any of the provisions of Section 312;

(14)     the designation of the initial Exchange Rate Agent, if any;

(15)     any provisions limiting the applicability of, in modification of, in addition to or in lieu of the provisions of Article Fourteen that shall be applicable to the Securities of the series;

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(16)     provisions, if any, granting special rights to the Holders of Securities of the series upon the occurrence of such events as may be specified;

(17)     any deletions from, modifications of or additions to the Events of Default or covenants of the Corporation with respect to Securities of the series, whether or not such Events of Default or covenants are consistent with the Events of Default or covenants set forth herein;

(18)     whether any Securities of the series are to be issuable in global form and, if so, whether beneficial owners of interests in any such global Security may exchange such interests for Securities of such series and of like tenor of any authorized form and denomination and the circumstances under which any such exchanges may occur, if other than in the manner provided in Section 305;

(19)     the Person to whom any interest on any Security of the series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest;

(20)     if Securities of the series are to be issuable in definitive form (whether upon original issue or upon exchange of a temporary Security of such series) only upon receipt of certain certificates or other documents or satisfaction of other conditions, the form and/or terms of such certificates, documents or conditions; and

(21)     any other terms, conditions, rights and preferences (or limitations on such rights and preferences) relating to the series (which terms shall not be inconsistent with the requirements of Trust Indenture Legislation or the provisions of this Indenture).

All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to such Board Resolution (subject to Section 303) and set forth in such Officers’ Certificate or in any such indenture supplemental hereto. Not all Securities of any one series need be issued at the same time, and, unless otherwise provided, a series may be reopened for issuances of additional Securities of such series.

If any of the terms of the series are established by action taken pursuant to one or more Board Resolutions, such Board Resolutions shall be delivered to the Trustees at or prior to the delivery of the Officers’ Certificate setting forth the terms of the series.

SECTION 302.   Denominations.  All Securities shall be issuable in such denominations as shall be specified as contemplated by Section 301. Securities of any series denominated in U.S. Dollars, in the absence of any such provisions, shall be issuable in denominations of U.S.$1,000 and any integral multiple thereof.

SECTION 303.   Execution, Authentication, Delivery and Dating.  The Securities shall be executed on behalf of the Corporation by its Chairman, its President or a Vice President, under its corporate seal reproduced thereon attested by its Secretary or an Assistant Secretary. The signature of any of these officers on the Securities may be the manual or facsimile signatures of the present or any future such authorized officer and may be imprinted or otherwise reproduced on the Securities.

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Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Corporation shall bind the Corporation, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities.

At any time and from time to time after the execution and delivery of this Indenture, the Corporation may deliver Securities of any series executed by the Corporation to one of the Trustees for authentication, together with a Corporation Order for the authentication and delivery of such Securities, and such Trustee, in accordance with the Corporation Order, shall authenticate and deliver such Securities. If not all the Securities of any series are to be issued at one time and if the Board Resolution or supplemental indenture establishing such series shall so permit, such Corporation Order may set forth procedures acceptable to the applicable Trustee for the issuance of such Securities and determining terms of particular Securities of such series such as interest rate, maturity date, date of issuance and date from which interest shall accrue.

In authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the applicable Trustee shall be entitled to receive, and (subject to Trust Indenture Legislation) shall be fully protected in acting and relying upon, an Opinion of Counsel stating:

(a)     that the form or forms of such Securities have been established in conformity with the provisions of this Indenture;

(b)     that the terms of such Securities have been established in conformity with the provisions of this Indenture;

(c)     that such Securities, when completed by appropriate insertions and executed and delivered by the Corporation to one of the Trustees for authentication in accordance with this Indenture, authenticated and delivered by such Trustee in accordance with this Indenture and issued by the Corporation in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute the legal, valid and binding obligations of the Corporation, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization and other similar laws of general applicability relating to or affecting the enforcement of creditors’ rights, to general equitable principles and to such other qualifications as such counsel shall conclude do not materially affect the rights of Holders of such Securities; and

(d)     that authentication and delivery of such Securities and the execution and delivery of the supplemental indenture, if any, by such Trustee will not violate the terms of the Indenture.

Notwithstanding the provisions of Section 301 and of the preceding two paragraphs, if not all the Securities of any series are to be issued at one time, it shall not be necessary to deliver the Officer’s Certificate otherwise required pursuant to Section 301 or the

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Corporation Order and Opinion of Counsel otherwise required pursuant to the preceding two paragraphs prior to or at the time of issuance of each Security, but such documents shall be delivered prior to or at the time of issuance of the first Security of such series.

A Trustee shall not be required to authenticate and deliver any such Securities if the issue of such Securities pursuant to this Indenture will affect such Trustee’s own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to such Trustee.

Each Security shall be dated the date of its authentication.

No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein, executed by either Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Corporation, and the Corporation shall deliver such Security to either Trustee for cancellation as provided in Section 310 together with a written statement (which need not comply with Section 102 and need not be accompanied by an Opinion of Counsel) stating that such Security has never been issued and sold by the Corporation, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture.

SECTION 304.   Temporary Securities.  Pending the preparation of definitive Securities of any series, the Corporation may execute, and upon Corporation Order one of the Trustees shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued, and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. In the case of Securities of any series, such temporary Securities may be in global form.

If temporary Securities of any series are issued, the Corporation will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series, upon surrender of the temporary Securities of such series at the office or agency of the Corporation in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series, the Corporation shall execute and one of the Trustees shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of like tenor of the same series of authorized denominations. Until so exchanged the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series.

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SECTION 305.   Registration, Registration of Transfer and Exchange.  So long as required by Trust Indenture Legislation, the Corporation shall cause to be kept at its registered office in Ontario, or at the office or agency of a trust corporation in Canada an index and register (the “principal register”) of Holders of Securities and shall as soon as possible cause to be entered therein the name (alphabetically arranged) of every person who becomes a Holder together with (i) the full name and address of every Holder, noting, where applicable, the Holder’s representative capacity, (ii) the date that each Holder is entered in the principal register, and whether the Holder acquired its Security by issue or transfer or otherwise and, if by transfer, from whom, (iii) the date that a person ceases to be a Holder, (iv) the principal amount of Securities held by the Holder, and the (v) particulars of the Securities held by the Holder. The Corporation shall initially be the principal securities registrar for the purpose of registering the transfer and exchange of Securities as provided herein; provided, however, that the Corporation may appoint from time to time one or more successor principal security registrars and may from time to time rescind any such appointment. If no longer required by Trust Indenture Legislation, the Corporation may appoint a Person other than the Corporation or a trust corporation in Canada as the principal securities registrar.

The Corporation may also cause to be maintained a branch register or branch registers (each a “branch register”) of Holders of Securities in accordance with Section 1002 in the same manner and containing the same information with respect to each entry contained therein as contained in the principal register. A copy of every entry in any branch register shall, promptly after the entry is made, be transmitted to the principal registrar. Unless otherwise specified pursuant to Section 301, the U.S. Trustee is hereby initially appointed as a branch registrar for the purpose of maintaining a branch register with respect to the Securities of each series at its Corporate Trust Office in the Borough of Manhattan, The City of New York; provided, however, that the Corporation may from time to time appoint one or more successor or additional branch registrars and may from time to time rescind any such appointment.

The principal register together with each branch register is sometimes referred to herein as the “Securities Register”, and the principal registrar together with each branch registrar is sometimes referred to herein as the “Securities Registrar”. In the event of any conflict between the principal register and any branch register, the principal register shall be determinitive.

Upon surrender for registration of transfer of any Security of any series at the office or agency in a Place of Payment for that series, the Corporation shall execute, and one of the Trustees shall authenticate and deliver, in the name of the designated transferee, one or more new Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor.

At the option of the Holder, Securities of any series may be exchanged for other Securities of the same series of like tenor, of any authorized denominations and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Corporation shall execute, and one of the Trustees shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive.

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All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Corporation, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange.

Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Corporation or the Security Registrar) be duly endorsed, or be accompanied by a written instrument of transfer, in form satisfactory to the Corporation and the Security Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing with such signature guaranteed by a commercial bank reasonably acceptable to the Security Registrar or by a member of a national securities exchange.

No service charge shall be made for any registration of transfer or exchange of Securities, but the Corporation may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 906, 1107 or 1305 not involving any transfer.

The Corporation shall not be required (i) to issue, register the transfer of or exchange Securities of any series during a period beginning at the opening of business 15 days before the day of the selection for redemption of Securities of that series under Section 1103 or 1203 and ending at the close of business on the day of the mailing of the relevant notice of redemption or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part or (iii) to issue, register the transfer of or exchange any Security which has been surrendered for repayment at the option of the Holder, except the portion, if any, of such Security not to be so repaid.

SECTION 306.   Mutilated, Destroyed, Lost and Stolen Securities.  If any mutilated Security is surrendered to either Trustee, the Corporation shall execute and such Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding or, in case any such mutilated Security has become or is about to become due and payable, the Corporation in its discretion may, instead of issuing a new Security, pay such Security.

If there shall be delivered to the Corporation and to either Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Corporation or such Trustee that such Security has been acquired by a bona fide purchaser, the Corporation shall execute and upon its request such Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding, or, in case any such destroyed, lost or stolen Security has become or is about to become due and payable, the Corporation in its discretion may, instead of issuing a new Security, pay such Security.

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Upon the issuance of any new Security under this Section, the Corporation may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustees) connected therewith.

Every new Security of any series, issued pursuant to this Section in lieu of any destroyed, lost or stolen Security, shall constitute an original additional contractual obligation of the Corporation, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder.

The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.

SECTION 307.   Payment of Interest; Interest Rights Preserved; Optional Interest Reset.  (a)     Unless otherwise provided as contemplated by Section 301 with respect to any series of Securities, interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name such Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Corporation maintained for such purpose pursuant to Section 1002; provided, however, that each instalment of interest on any Security may at the Corporation’s option be paid by (i) mailing a cheque for such interest, payable to or upon the written order of the Person entitled thereto pursuant to Section 309, to the address of such Person as it appears on the Security Register or (ii) transfer to an account maintained by the payee located inside the United States.

Any interest on any Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called “Defaulted Interest”) shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Corporation, at its election in each case, as provided in clause (1) or (2) below:

(1)     The Corporation may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Corporation shall notify the Trustees in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Corporation shall deposit with one of the Trustees an amount of money in the Currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series and except, if applicable, as provided in Sections 312(b), 312(d) and 312(e)) equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustees for such deposit on or prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the

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Trustees shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustees of the notice of the proposed payment. The Trustees shall promptly notify the Corporation of such Special Record Date and, in the name and at the expense of the Corporation, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities of such series at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose name the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2).

(2)     The Corporation may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Corporation to the Trustees of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustees.

(b)     The provisions of this Section 307(b) may be made applicable to any series of Securities pursuant to Section 301 (with such modifications, additions or substitutions as may be specified pursuant to such Section 301). The interest rate (or the spread or spread multiplier used to calculate such interest rate, if applicable) on any Security of such series may be reset by the Corporation on the date or dates specified on the face of such Security (each an “Optional Reset Date”). The Corporation may exercise such option with respect to such Security by notifying the Trustees of such exercise at least 50 but not more than 60 days prior to an Optional Reset Date for such Note, which notice shall set forth the specific information to be contained in the Reset Notice (as defined below). Not later than 40 days prior to each Optional Reset Date, the Trustees shall transmit, in the manner provided for in Section 106, to the Holder of any such Security a notice (the “Reset Notice”) indicating whether the Corporation has elected to reset the interest rate (or the spread or spread multiplier used to calculate such interest rate, if applicable), and if so (i) such new interest rate (or such new spread or spread multiplier, if applicable) or method of determining such rate (or spread or spread multiplier, if applicable) and (ii) the provisions, if any, for redemption during the period from such Optional Reset Date to the next Optional Reset Date or if there is no such next Optional Reset Date, to the Stated Maturity Date of such Security (each such period a “Subsequent Interest Period”), including the date or dates on which or the period or periods during which and the price or prices at which such redemption may occur during the Subsequent Interest Period.

Notwithstanding the foregoing, not later than 20 days prior to the Optional Reset Date, the Corporation may, at its option, revoke the interest rate (or the spread or spread multiplier used to calculate such interest rate, if applicable) or method of determining such rate (or spread or spread multiplier, if applicable) provided for in the Reset Notice and establish an interest rate (or a spread or spread multiplier used to calculate such interest rate, if applicable) that is higher than the interest rate (or the spread or spread multiplier, if applicable) or method of

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determining such rate (or spread or spread multiplier, if applicable) provided for in the Reset Notice, for the Subsequent Interest Period by causing the Trustees to transmit, in the manner provided for in Section 106, notice of such higher interest rate (or such higher spread or spread multiplier, if applicable) or method of determining such higher interest rate (or spread or spread multiplier, if applicable) to the Holder of such Security. Such notice shall be irrevocable. All Securities with respect to which the interest rate (or the spread or spread multiplier used to calculate such interest rate, if applicable) is reset on an Optional Reset Date, and with respect to which the Holders of such Securities have not tendered such Securities for repayment (or have validly revoked any such tender) pursuant to the next succeeding paragraph, will bear such higher interest rate (or such higher spread or spread multiplier, if applicable).

The Holder of any such Security will have the option to elect repayment by the Corporation of the principal of such Security on each Optional Reset Date at a price equal to the principal amount thereof plus interest accrued to such Optional Reset Date. In order to obtain repayment on an Optional Reset Date, the Holder must follow the procedures set forth in Article Thirteen for repayment at the option of Holders except that the period for delivery or notification to one of the Trustees shall be at least 25 but not more than 35 days prior to such Optional Reset Date and except that, if the Holder has tendered any Security for repayment pursuant to the Reset Notice, the Holder may, by written notice to one of the Trustees, revoke such tender or repayment until the close of business on the tenth day before such Optional Reset Date.

Subject to the foregoing provisions of this Section and Section 305, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.

SECTION 308.   Optional Extension of Maturity.  The provisions of this Section 308 may be made applicable to any series of Securities pursuant to Section 301 (with such modifications, additions or substitutions as may be specified pursuant to such Section 301). The Stated Maturity of any Security of such series may be extended at the option of the Corporation for the period or periods specified on the face of such Security (each an “Extension Period”) up to but not beyond the date (the “Final Maturity”) set forth on the face of such Security. The Corporation may exercise such option with respect to any Security by notifying the Trustees of such exercise at least 50 but not more than 60 days prior to the Stated Maturity of such Security in effect prior to the exercise of such option (the “Original Stated Maturity”), which notice shall set forth the specific information to be contained in the Extension Notice (as defined below). If the Corporation exercises such option, the Trustees shall transmit, in the manner provided for in Section 106, to the Holder of such Security not later than 40 days prior to the Original Stated Maturity a notice (the “Extension Notice”) indicating (i) the election of the Corporation to extend the Maturity, (ii) the new Stated Maturity, (iii) the interest rate applicable to the Extension Period and (iv) the provisions, if any, for redemption during such Extension Period. Upon the Trustees’ transmittal of the Extension Notice, the Stated Maturity of such Security shall be extended automatically and, except as modified by the Extension Notice and as described in the next paragraph, such Security will have the same terms as prior to the transmittal of such Extension Notice.

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Notwithstanding the foregoing, not later than 20 days before the Original Stated Maturity of such Security, the Corporation may, at its option, revoke the interest rate provided for in the Extension Notice and establish a higher interest rate for the Extension Period by causing the Trustees to transmit, in the manner provided for in Section 106, notice of such higher interest rate to the Holder of such Security. Such notice shall be irrevocable. All Securities with respect to which the Stated Maturity is extended will bear such higher interest rate.

If the Corporation extends the Maturity of any Security, the Holder will have the option to elect repayment of such Security by the Corporation on the Original Stated Maturity at a price equal to the principal amount thereof, plus interest accrued to such date. In order to obtain repayment on the Original Stated Maturity once the Corporation has extended the Maturity thereof, the Holder must follow the procedures set forth in Article Thirteen for repayment at the option of Holders, except that the period for delivery or notification to one of the Trustees shall be at least 25 but not more than 35 days prior to the Original Stated Maturity and except that, if the Holder has tendered any Security for repayment pursuant to an Extension Notice, the Holder may by written notice to one of the Trustees revoke such tender for repayment until the close of business on the tenth day before the Original Stated Maturity.

SECTION 309.   Persons Deemed Owners.  Prior to due presentment of a Security for registration of transfer, the Corporation, the Trustees and any agent of the Corporation or the Trustees may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Sections 305 and 307) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Corporation, the Trustees nor any agent of the Corporation or the Trustees shall be affected by notice to the contrary.

None of the Corporation, the Trustees, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Security in global form or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.

Notwithstanding the foregoing, with respect to any global Security, nothing herein shall prevent the Corporation, the Trustees, or any agent of the Corporation or the Trustees, from giving effect to any written certification, proxy or other authorization furnished by any depositary, as a Holder, with respect to such global Security or impair, as between such depositary and owners of beneficial interests in such global Security, the operation of customary practices governing the exercise of the rights of such depositary (or its nominee) as Holder of such global Security.

SECTION 310.   Cancellation.  All Securities surrendered for payment, redemption, repayment at the option of the Holder, registration of transfer or exchange or for credit against any current or future sinking fund payment shall, if surrendered to any Person other than a Trustee, be delivered to one of the Trustees. All Securities so delivered shall be promptly cancelled by such Trustee. The Corporation may at any time deliver to one of the Trustees for cancellation any Securities previously authenticated and delivered hereunder which the Corporation may have acquired in any manner whatsoever, and may deliver to one of the Trustees (or to any other Person for delivery to one of the Trustees) for cancellation any

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Securities previously authenticated hereunder which the Corporation has not issued and sold, and all Securities so delivered, shall be promptly cancelled by such Trustee. If the Corporation shall so acquire any of the Securities, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities unless and until the same are surrendered to one of the Trustees for cancellation. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. Unless by Corporation Order the Corporation directs the return of any cancelled Securities to it, each Trustee shall destroy all cancelled Securities and shall deliver its certificate of such destruction to the Corporation.

SECTION 311.   Computation of Interest.  Except as otherwise specified as contemplated by Section 301 with respect to any Securities, interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months.

SECTION 312.   Currency and Manner of Payments in Respect of Securities.  (a)     Unless otherwise specified with respect to any Securities pursuant to Section 301, payment of the principal of (and premium, if any) and interest, if any, on the Securities of any series not permitting the election provided for in paragraph (b) below or the Holders of which have not made the election provided for in paragraph (b) below, will be made in the Currency in which such Securities are payable. The provisions of this Section 312 may be modified or superseded with respect to the Securities of any series pursuant to Section 301.

(b)     It may be provided pursuant to Section 301 with respect to Securities of any series that Holders shall have the option, subject to paragraphs (d) and (e) below, to receive payments of principal of (and premium, if any) or interest, if any, on such Securities in any of the Currencies which may be designated for such election by delivering to one of the Trustees a written election with signature guarantees and in the applicable form established pursuant to Section 301, not later than the close of business on the Election Date immediately preceding the applicable payment date. If a Holder so elects to receive such payments in any such Currency, such election will remain in effect for such Holder or any transferee of such Holder until changed by such Holder or such transferee by written notice to one of the Trustees for such series of Securities (but any such change must be made not later than the close of business on the Election Date immediately preceding the next payment date to be effective for the payment to be made on such payment date and no such change of election may be made with respect to payments to be made on any Security of such series with respect to which an Event of Default has occurred or with respect to which the Corporation has deposited funds pursuant to Articles Four or Fourteen or with respect to which a notice of redemption has been given by the Corporation or a notice of option to elect repayment has been sent by such Holder or such transferee). Any Holder of any such Security who shall not have delivered any such election to one of the Trustees of such series of Securities not later than the close of business on the applicable Election Date will be paid the amount due on the applicable payment date in the relevant Currency as provided in Section 312(a). The Trustees for each such series of Securities shall notify the Exchange Rate Agent as soon as practicable after the Election Date of the aggregate principal amount of Securities for which Holders have made such written election.

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(c)     Unless otherwise specified pursuant to Section 301, if the election referred to in paragraph (b) above has been provided for pursuant to Section 301, then, unless otherwise specified pursuant to Section 301, not later than the fourth Business Day after the Election Date for each payment date for Securities of any series, the Exchange Rate Agent will deliver to the Corporation a written notice specifying, in the Currency in which Securities of such series are payable, the respective aggregate amounts of principal of (and premium, if any) and interest, if any, on the Securities to be paid on such payment date, specifying the amounts in such Currency so payable in respect of the Securities as to which the Holders of Securities denominated in any Currency shall have elected to be paid in another Currency as provided in paragraph (b) above. If the election referred to in paragraph (b) above has been provided for pursuant to Section 301 and if at least one Holder has made such election, then, unless otherwise specified pursuant to Section 301, on the second Business Day preceding such payment date the Corporation will deliver to the Trustees for such series of Securities an Exchange Rate Officer’s Certificate in respect of the U.S. Dollar or Foreign Currency payments to be made on such payment date. Unless otherwise specified pursuant to Section 301, the U.S. Dollar or Foreign Currency amount receivable by Holders of Securities who have elected payment in a Currency as provided in paragraph (b) above shall be determined by the Corporation on the basis of the applicable Market Exchange Rate in effect on the third Business Day (the “Valuation Date”) immediately preceding each payment date, and such determination shall be conclusive and binding for all purposes, absent manifest error.

(d)     If a Conversion Event occurs with respect to a Foreign Currency in which any of the Securities are denominated or payable other than pursuant to an election provided for pursuant to paragraph (b) above, then with respect to each date for the payment of principal of (and premium, if any) and interest, if any, on the applicable Securities denominated or payable in such Foreign Currency occurring after the last date on which such Foreign Currency was used (the “Conversion Date”), the U.S. Dollar shall be the Currency of payment for use on each such payment date. Unless otherwise specified pursuant to Section 301, the U.S. Dollar amount to be paid by the Corporation to the Trustees with respect to each such series of Securities and by the Trustees or any Paying Agent to the Holders of such Securities with respect to such payment date shall be, in the case of a Foreign Currency other than a currency unit, the U.S. Dollar Equivalent of the Foreign Currency or, in the case of a currency unit, the U.S. Dollar Equivalent of the Currency Unit, in each case as determined by the Exchange Rate Agent in the manner provided in paragraph (f) or (g) below.

(e)     Unless otherwise specified pursuant to Section 301, if the Holder of a Security denominated in any Currency shall have elected to be paid in another Currency as provided in paragraph (b) above, and a Conversion Event occurs with respect to such elected Currency, such Holder shall receive payment in the Currency in which payment would have been made in the absence of such election; and if a Conversion Event occurs with respect to the Currency in which payment would have been made in the absence of such election, such Holder shall receive payment in U.S. Dollars as provided in paragraph (d) above.

(f)     The “U.S. Dollar Equivalent of the Foreign Currency” shall be determined by the Exchange Rate Agent and shall be obtained for each subsequent payment date by converting the specified Foreign Currency into U.S. Dollars at the Market Exchange Rate on the Conversion Date.

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(g)     The “U.S. Dollar Equivalent of the Currency Unit” shall be determined by the Exchange Rate Agent and subject to the provisions of paragraph (h) below shall be the sum of each amount obtained by converting the Specified Amount of each Component Currency into U.S. Dollars at the Market Exchange Rate for such Component Currency on the Valuation Date with respect to each payment.

(h)     For purposes of this Section 312 the following terms shall have the following meanings:

A “Component Currency” shall mean any Currency which, on the Conversion Date, was a component currency of the relevant currency unit, including, but not limited to, the ECU.

A “Specified Amount” of a Component Currency shall mean the number of units of such Component Currency or fractions thereof which were represented in the relevant currency unit, including, but not limited to, the ECU, on the Conversion Date. If after the Conversion Date the official unit of any Component Currency is altered by way of combination or subdivision, the Specified Amount of such Component Currency shall be divided or multiplied in the same proportion. If after the Conversion Date two or more Component Currencies are consolidated into a single currency, the respective Specified Amounts of such Component Currencies shall be replaced by an amount in such single Currency equal to the sum of the respective Specified Amounts of such consolidated Component Currencies expressed in such single Currency, and such amount shall thereafter be a Specified Amount and such single Currency shall thereafter be a Component Currency. If after the Conversion Date any Component Currency shall be divided into two or more currencies, the Specified Amount of such Component Currency shall be replaced by amounts of such two or more currencies, having an aggregate U.S. Dollar Equivalent value at the Market Exchange Rate on the date of such replacement equal to the U.S. Dollar Equivalent of the Specified Amount of such former Component Currency at the Market Exchange Rate immediately before such division and such amounts shall thereafter be Specified Amounts and such currencies shall thereafter be Component Currencies. If, after the Conversion Date of the relevant currency unit, including, but not limited to, the ECU, a Conversion Event (other than any event referred to above in this definition of “Specified Amount”) occurs with respect to any Component Currency of such currency unit and is continuing on the applicable Valuation Date, the Specified Amount of such Component Currency shall, for purposes of calculating the U.S. Dollar Equivalent of the Currency Unit, be converted into U.S. Dollars at the Market Exchange Rate in effect on the Conversion Date of such Component Currency.

“Election Date” shall mean the date for any series of Securities as specified pursuant to clause (13) of Section 301 by which the written election referred to in paragraph (b) above may be made.

All decisions and determinations of the Exchange Rate Agent regarding the U.S. Dollar Equivalent of the Foreign Currency, the U.S. Dollar Equivalent of the Currency Unit, the Market Exchange Rate and changes in the Specified Amounts as specified above shall be in its sole discretion and shall, in the absence of manifest error, be conclusive for all purposes and

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irrevocably binding upon the Corporation, the Trustees and all Holders of Securities denominated or payable in the relevant Currency. The Exchange Rate Agent shall promptly give written notice to the Corporation and the Trustees of any such decision or determination.

In the event that the Corporation determines in good faith that a Conversion Event has occurred with respect to a Foreign Currency, the Corporation will immediately give written notice thereof to the Trustees and to the Exchange Rate Agent (and each such Trustee will promptly thereafter give notice in the manner provided in Section 106 to the affected Holders) specifying the Conversion Date. In the event the Corporation so determines that a Conversion Event has occurred with respect to the ECU or any other currency unit in which Securities are denominated or payable, the Corporation will immediately give written notice thereof to the Trustees and to the Exchange Rate Agent (and each such Trustee will promptly thereafter give notice in the manner provided in Section 106 to the affected Holders) specifying the Conversion Date and the Specified Amount of each Component Currency on the Conversion Date. In the event the Corporation determines in good faith that any subsequent change in any Component Currency as set forth in the definition of Specified Amount above has occurred, the Corporation will similarly give written notice to the Trustees and to the Exchange Rate Agent.

The Trustees shall be fully justified and protected in relying and acting upon information received by it from the Corporation and the Exchange Rate Agent and shall not otherwise have any duty or obligation to determine the accuracy or validity of such information independent of the Corporation or the Exchange Rate Agent.

SECTION 313.   Appointment and Resignation of Successor Exchange Rate Agent.  (a)     Unless otherwise specified pursuant to Section 301, if and so long as the Securities of any series (i) are denominated in a Currency other than U.S. Dollars or (ii) may be payable in a Currency other than U.S. Dollars, or so long as it is required under any other provision of this Indenture, then the Corporation will maintain with respect to each such series of Securities, or as so required, at least one Exchange Rate Agent. The Corporation will cause the Exchange Rate Agent to make the necessary foreign exchange determinations at the time and in the manner specified pursuant to Section 301 for the purpose of determining the applicable rate of exchange and, if applicable, for the purpose of converting the issued Currency into the applicable payment Currency for the payment of principal (and premium, if any) and interest, if any, pursuant to Section 312.

(b)     No resignation of the Exchange Rate Agent and no appointment of a successor Exchange Rate Agent pursuant to this Section shall become effective until the acceptance of appointment by the successor Exchange Rate Agent as evidenced by a written instrument delivered to the Corporation and the Trustees accepting such appointment executed by the successor Exchange Rate Agent.

(c)     If the Exchange Rate Agent shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of the Exchange Rate Agent for any cause, with respect to the Securities of one or more series, the Corporation, by or pursuant to a Board Resolution, shall promptly appoint a successor Exchange Rate Agent or Exchange Rate Agents with respect to the Securities of that or those series (it being understood that any such successor Exchange Rate Agent may be appointed with respect to the Securities of one or more or all of

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such series and that, unless otherwise specified pursuant to Section 301, at any time there shall only be one Exchange Rate Agent with respect to the Securities of any particular series that are originally issued by the Corporation on the same date and that are initially denominated and/or payable in the same Currency).

ARTICLE FOUR

SATISFACTION AND DISCHARGE

SECTION 401.   Satisfaction and Discharge of Indenture.  This Indenture shall upon Corporation Request cease to be of further effect with respect to any series of Securities (except as to any surviving rights of registration of transfer or exchange of Securities of such series herein expressly provided for and the Trustees, at the expense of the Corporation, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture as to such series) when

(1)     either

(A)     all Securities of such series theretofore authenticated and delivered (other than (i) Securities of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities of such series for whose payment money has theretofore been deposited with one of the Trustees or any Paying Agent and thereafter repaid to the Corporation, as provided in Section 1003) have been delivered to the Trustees for cancellation; or

(B)     all Securities of such series not theretofore delivered to the Trustees for cancellation

(i)have become due and payable, or

(ii)will become due and payable at their Stated Maturity within one year, or

(iii)if redeemable at the option of the Corporation, are to be called for redemption within one year under arrangements satisfactory to the Trustees for the giving of notice of redemption by the Trustees in the name, and at the expense, of the Corporation,

and the Corporation, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with one of the Trustees as trust funds in trust for the purpose an amount, in the Currency in which the Securities of such series are payable, sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustees for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be;

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(2)     the Corporation has paid or caused to be paid all other sums payable hereunder by the Corporation; and

(3)     the Corporation has delivered to the Trustees an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture as to such series have been complied with.

Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Corporation to the Trustees under Section 608, the obligations of the Trustees to any Authenticating Agent under Section 614 and, if money shall have been deposited with one of the Trustees pursuant to subclause (B) of clause (1) of this Section, the obligations of such Trustee under Section 402 and the last paragraph of Section 1003 shall survive.

SECTION 402.   Application of Trust Money.  Subject to the provisions of the last paragraph of Section 1003, all money deposited with a Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Corporation acting as its own Paying Agent) as such Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with such Trustee; but such money need not be segregated from other funds except to the extent required by law.

ARTICLE FIVE

REMEDIES

SECTION 501.   Events of Default.  “Event of Default”, wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):

(1)     default in the payment of any interest on any Security of that series when such interest becomes due and payable, and continuance of such default for a period of 30 days; or

(2)     default in the payment of the principal of (or premium, if any, on) any Security of that series at its Maturity; or

(3)     default in the payment of any sinking or purchase fund or analogous obligation when the same becomes due by the terms of the Securities of such series; or

(4)     default in the performance, or breach, of any covenant or warranty of the Corporation in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of a series of Securities other than that series), and continuance of such default or breach for a period

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of 60 days after there has been given, by registered or certified mail, to the Corporation by either Trustee or to the Corporation and the Trustees by the Holders of at least 25% in principal amount of all Outstanding Securities of that series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or

(5)     (A) there shall have occurred a default by the Corporation in the payment, at the stated maturity, of any Debt (including a default with respect to Securities of any series other than that series) in an amount in excess of US$10,000,000 outstanding under or evidenced by any single indenture or instrument (including this Indenture), whether such Debt now exists or shall hereafter be created, and such default shall have continued after any applicable grace period and shall not have been cured or waived or (B) Debt of the Corporation in an amount in excess of US$10,000,000 outstanding under or evidenced by any single indenture or instrument (including this Indenture), whether such Debt now exists or shall hereafter be created, shall have been accelerated or otherwise declared due and payable prior to the stated maturity thereof, and such Debt shall not have been discharged, or such acceleration shall not have been rescinded or annulled, within 10 days after notice thereof shall have been given, by registered or certified mail, to the Corporation by either Trustee, or to the Corporation and the Trustees by the Holders of at least 25% in aggregate principal amount of all of the Securities at the time Outstanding; or

(6)     the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Corporation or any Material Subsidiary in an involuntary case or proceeding under any applicable United States federal or State or Canadian federal or provincial bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Corporation or any Material Subsidiary a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Corporation or any Material Subsidiary under any other applicable United States federal or State law or under comparable provisions of Canadian federal or provincial law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Corporation or any Material Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or

(7)     the institution by the Corporation or any Material Subsidiary of proceedings to be adjudicated a bankrupt or insolvent, or the consent by the Corporation or any Material Subsidiary to the institution of bankruptcy or insolvency proceedings against the Corporation or any Material Subsidiary or the entry of a decree or order for relief from creditors, or the filing by the Corporation or any Material Subsidiary of a petition or answer or consent seeking reorganization or relief from creditors in respect of it or its property under any applicable United States federal or State law or under comparable provisions of Canadian federal or provincial law, or the consent by the Corporation or any Material Subsidiary to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Corporation or any Material Subsidiary or of

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any substantial part of its property, or the making by the Corporation or any Material Subsidiary of a general assignment for the benefit of creditors, or the admission by the Corporation or any Material Subsidiary in writing of its inability to pay its debts generally as they become due or, to the knowledge of either of the Trustees, the taking of corporate action by the Corporation or any Material Subsidiary in furtherance of any such action; or

(8)     any other Event of Default provided with respect to Securities of that series.

SECTION 502.   Acceleration of Maturity; Rescission and Annulment.  If an Event of Default (other than an Event of Default described in clause (4) of Section 501 or an Event of Default relating to the Corporation (but not any Material Subsidiary) described in clause (6) or (7) of Section 501) with respect to Securities of any series at the time Outstanding occurs and is continuing, then in every such case the Trustees or the Holders of not less than 25% in principal amount of the Outstanding Securities of that series may declare the principal amount (or, if the Securities of that series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of that series) of all of the Securities of that series to be due and payable immediately, by a notice in writing to the Corporation (and to the Trustees if given by Holders), and upon any such declaration such principal amount (or specified portion thereof) shall become immediately due and payable. If an Event of Default described in clause (4) of Section 501 occurs and is continuing, then in every such case the Trustees or the Holders of not less than 25% in principal amount of all the Securities then Outstanding may declare the principal amount (or, if any such Securities are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of that series) of all of the Outstanding Securities to be due and payable immediately, by a notice in writing to the Corporation (and to the Trustees if given by the Holders) and upon any such declaration such principal amount (or specified portion thereof) shall become immediately due and payable. If an Event of Default with respect to the Corporation (but not any Material Subsidiary) described in clause (6) or (7) of Section 501 occurs, the principal amount of all the Securities then Outstanding shall automatically, and without any declaration or other action on the part of the Trustees or any Holder, become immediately due and payable.

At any time after such a declaration of acceleration with respect to Securities of any series (or of all series, as the case may be) has been made and before a judgment or decree for payment of the money due has been obtained by the Trustees as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series (or of all series, as the case may be), by written notice to the Corporation and the Trustees, may rescind and annul such declaration and its consequences if

(1)     the Corporation has paid or deposited with either or both of the Trustees a sum sufficient to pay in the Currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series and except, if applicable, as provided in Sections 312(b), 312(d) and 312(e)),

(A)     all overdue interest on all Outstanding Securities of that series (or of all series, as the case may be),

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(B)     all unpaid principal of (and premium, if any, on) any Outstanding Securities of that series (or of all series, as the case may be) which has become due otherwise than by such declaration of acceleration, and any interest on such unpaid principal at the rate or rates prescribed therefor in such Securities,

(C)     to the extent that payment of such interest is lawful, interest upon overdue interest at the rate or rates prescribed therefor in such Securities, and

(D)     all sums paid or advanced by the Trustees hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustees, their agents and counsel; and

(2)     all Events of Default with respect to Securities of that series (or of all series, as the case may be), other than the non-payment of amounts of principal of (or premium, if any, on) or interest on Securities of that series (or of all series, as the case may be) which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513.

No such rescission shall affect any subsequent default or impair any right consequent thereon.

Notwithstanding the preceding paragraph, in the event of a declaration of acceleration in respect of the Securities because of an Event of Default specified in Section 501(5) shall have occurred and be continuing, such declaration of acceleration shall be automatically annulled if the Debt that is the subject of such Event of Default has been discharged or the holders thereof have rescinded their declaration of acceleration in respect of such Debt, and written notice of such discharge or rescission, as the case may be, shall have been given to the Trustees by the Corporation and countersigned by the holders of such Debt or a trustee, fiduciary or agent for such holders, within 30 days after such declaration of acceleration in respect of the Securities, and no other Event of Default has occurred during such 30-day period which has not been cured or waived during such period.

SECTION 503.   Collection of Indebtedness and Suits for Enforcement by Trustees.  The Corporation covenants that if

(1)     default is made in the payment of any instalment of interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days,

(2)     default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof, or

(3)     default is made in the payment of any sinking or purchase fund or analogous obligation when the same becomes due pursuant to the terms of any Security,

then the Corporation will, upon demand of the Trustees, pay to either or both of the Trustees, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal (and premium, if any) and interest, and interest on any overdue principal

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(and premium, if any) and to the extent that payment of such interest shall be legally enforceable, on any overdue interest, at the rate or rates prescribed therefor in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustees, their agents and counsel.

If the Corporation fails to pay such amounts forthwith upon such demand, the Trustees, in their own names and as trustees of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Corporation or any other obligor upon such Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Corporation or any other obligor upon such Securities, wherever situated.

If an Event of Default with respect to Securities of any series (or of all series, as the case may be) occurs and is continuing, the Trustees may in their discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series (or of all series, as the case may be) by such appropriate judicial proceedings as the Trustees shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.

SECTION 504.   Trustees May File Proofs of Claim.  In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Corporation or any other obligor upon the Securities or the property of the Corporation or of such other obligor or their creditors, the Trustees (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustees shall have made any demand on the Corporation for the payment of overdue principal, premium, if any, or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise,

(i)     to file and prove a claim for the whole amount of principal (and premium, if any), or such portion of the principal amount of any series of Original Issue Discount Securities as may be specified in the terms of such series, and interest owing and unpaid in respect of the Securities and to file such other papers or documents and take such other actions, including participating as a member, voting or otherwise, of any official committee of creditors appointed in such matter, as may be necessary or advisable in order to have the claims of the Trustees (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustees, their agents and counsel) and of the Holders allowed in such judicial proceeding, and

(ii)     to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same;

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and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustees and, in the event that the Trustees shall consent to the making of such payments directly to the Holders, to pay to the Trustees any amount due them for the reasonable compensation, expenses, disbursements and advances of the Trustees, their agents and counsel, and any other amounts due the Trustees under Section 608.

Nothing herein contained shall be deemed to authorize the Trustees to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustees to vote in respect of the claim of any Holder in any such proceeding except as aforesaid, to vote for the election of a trustee in bankruptcy or similar person or to participate as a member, voting or otherwise on any committee of creditors.

SECTION 505.   Trustees May Enforce Claims Without Possession of Securities.  All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustees without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustees shall be brought in their own names as trustees of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustees, their agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered.

SECTION 506.   Application of Money Collected.  Any money collected by the Trustees pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustees and, in case of the distribution of such money on account of principal (or premium, if any, on) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:

First:     To the payment of all amounts due the Trustees under Section 608;

Second:     To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively, in the order of principal first, then premium and then accrued and unpaid interest on amounts in default; and

Third:     The balance, if any, to the Person or Persons entitled thereto or as a court of competent jurisdiction may direct.

SECTION 507.   Limitation on Suits.  No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless

(1)     such Holder has previously given written notice to either Trustee of a continuing Event of Default with respect to the Securities of that series;

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(2)     the Holders of not less than 25% in principal amount of the Outstanding Securities of that series in the case of any Event of Default described in clause (1), (2), (3), (5) or (8) of Section 501, or, in the case of any Event of Default described in clause (4), (6) or (7) of Section 501, the Holders of not less than 25% in principal amount of all Outstanding Securities, shall have made written request to the Trustees to institute proceedings in respect of such Event of Default in their own names as Trustees hereunder;

(3)     such Holder or Holders have offered to the Trustees reasonable funding, security and indemnity against the costs, expenses and liabilities to be incurred in compliance with such request;

(4)     the Trustees for 60 days after their receipt of such notice, request and offer of funding, security and indemnity have failed to institute any such proceeding; and

(5)     no direction inconsistent with such written request has been given to either Trustee during such 60-day period by the Holders of not less than a majority in principal amount of the Outstanding Securities of that series in the case of any Event of Default described in clause (1), (2), (3), (5) or (8) of Section 501, or, in the case of any Event of Default described in clause (4), (6) or (7) of Section 501, by the Holders of not less than a majority in principal amount of all Outstanding Securities;

it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Securities of the same series, in the case of any Event of Default described in clause (1), (2), (3), (5) or (8) of Section 501, or of Holders of all Securities in the case of any Event of Default described in clause (4), (6) or (7) of Section 501, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all Holders of Securities of the same series, in the case of any Event of Default described in clause (1), (2), (3), (5) or (8) of Section 501, or of Holders of all Securities in the case of any Event of Default described in clause (4), (6) or (7) of Section 501.

SECTION 508.   Unconditional Right of Holders to Receive Principal, Premium and Interest.  Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment, as provided herein (including, if applicable, Article Fourteen) and in such Security, of the principal of (and premium, if any) and (subject to Section 307) interest on, such Security on the respective due dates expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder.

SECTION 509.   Restoration of Rights and Remedies.  If the Trustees or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustees or to such Holder, then and in every such case, subject to any determination in such proceeding, the Corporation, the Trustees and the Holders of Securities shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustees and the Holders shall continue as though no such proceeding had been instituted.

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SECTION 510.   Rights and Remedies Cumulative.  Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustees or to the Holders of Securities is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

SECTION 511.   Delay or Omission Not Waiver.  No delay or omission of the Trustees or either of them or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustees or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustees or by the Holders, as the case may be.

SECTION 512.   Control by Holders.  With respect to the Securities of any series, the Holders of not less than a majority in principal amount of the Outstanding Securities of such series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustees, or exercising any trust or power conferred on the Trustees, relating to or arising under clause (1), (2), (3), (5) or (8) of Section 501, and, with respect to all Securities, the Holders of not less than a majority in principal amount of all Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustees, or exercising any trust or power conferred on the Trustees, not relating to or arising under clause (1), (2), (3), (5) or (8) of Section 501, provided that in each case

(1)     such direction shall not be in conflict with any rule of law or with this Indenture,

(2)     the Trustees may take any other action deemed proper by them which is not inconsistent with such direction, and

(3)     the Trustees need not take any action which might involve either of them in personal liability or be unjustly prejudicial to either of them or to the Holders of Securities of such series not taking part in such direction or to the Holders of Securities of any other series.

SECTION 513.   Waiver of Past Defaults.  Subject to Section 502, the Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series waive any past default described in clause (1), (2), (3), (5) or (8) of Section 501 (or, in the case of a default described in clause (4),

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(6) or (7) of Section 501, the Holders of not less than a majority in principal amount of all Outstanding Securities may waive any such past default), and its consequences, except a default

(1)     in respect of the payment of the principal of (or premium, if any, on) or interest on any Security, or

(2)     in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected.

Upon any such waiver, any such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.

ARTICLE SIX

THE TRUSTEES

SECTION 601.   Joint Trustees.  The rights, powers, duties and obligations conferred and imposed upon the Trustees are conferred and imposed upon and shall be exercised and performed by the U.S. Trustee and the Canadian Trustee jointly, except to the extent otherwise provided herein and except to the extent that, under Trust Indenture Legislation, either Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, duties and obligations shall be exercised and performed by the Trustee which is not so incompetent or unqualified. If the Trustees are unable to agree jointly to act or refrain from acting with respect to any right, power, duty or obligation conferred jointly upon the Trustees hereunder, the reasonable decision of the U.S. Trustee to act or refrain from acting shall be binding upon the Canadian Trustee.

SECTION 602.   Duty of Trustees.  In the exercise of the powers, rights, duties and obligations prescribed or conferred by the terms of this Indenture, each Trustee shall exercise that degree of care, diligence and skill that a reasonably prudent trustee would exercise in comparable circumstances and act honestly and in good faith with a view to the best interests of the Holders of the Securities.

SECTION 603.   Notice of Defaults.  Each Trustee shall promptly give the other Trustee notice of any Default or Event of Default known to it. The Trustees, or either of them, shall, within a reasonable time but not exceeding 30 days after they become aware of the occurrence of any default hereunder, transmit by mail to all Holders, as their names and addresses appear in the Security Register, notice of such default, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest on any Security of such series or in the payment of any sinking fund instalment with respect to Securities of such series, the Trustees shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustees in good faith determine that the withholding of such notice is in the interest of the Holders of Securities

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of such series; and provided further that in the case of any default or breach of the character specified in Section 501(4) with respect to Securities of such series, no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term “default” means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series.

SECTION 604.   Certain Rights of Trustees.  In the exercise of the powers and discharge of the duties prescribed or conferred by the terms of this Indenture, each Trustee shall exercise the care, diligence and skill of a reasonably prudent trustee, and shall act honestly and in good faith and in a commercially reasonable manner and with a view to and in the best interests of the Holders. No provision of this Indenture shall be construed to relieve either of the Trustees from its duties, except that to the extent permitted by Trust Indenture Legislation:

(1)     the Trustees may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;

(2)     any request or direction of the Corporation mentioned herein shall be sufficiently evidenced by a Corporation Request or Corporation Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution;

(3)     whenever in the administration of this Indenture the Trustees shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustees (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, act and rely upon an Officers’ Certificate;

(4)     the Trustees may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;

(5)     neither Trustee shall be under any obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders of Securities of any series pursuant to this Indenture, unless such Holders shall have offered to such Trustee reasonable funding, security and indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;

(6)     the Trustees shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustees, in their discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustees shall determine to make such further inquiry or investigation, they shall be entitled to examine the books, records and premises of the Corporation, personally or by agent or attorney;

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(7)     the Trustees may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustees shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;

(8)     a Trustee shall not be deemed to have notice or knowledge of or to be aware of any matter unless a Responsible Officer of such Trustee has actual knowledge thereof or unless written notice thereof is received by such Trustee at its Corporate Trust Office and such notice references the Securities generally, the Corporation or this Indenture. Whenever reference is made in this Indenture to an Event of Default, such reference shall, insofar as determining any liability on the part of a Trustee is concerned, be construed to refer only to an Event of Default of which such Trustee is deemed to have knowledge in accordance with this paragraph; and

(9)     neither Trustee shall be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture.

The Trustees shall not be required to expend or risk their own funds or otherwise incur any financial liability in the performance of any of their duties hereunder, or in the exercise of any of their rights or powers if they shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to them.

SECTION 605.   Trustees Not Responsible for Recitals or Issuance of Securities.  The recitals contained herein and in the Securities, except for the Trustees’ certificates of authentication, shall be taken as the statements of the Corporation, and the Trustees assume no responsibility for their correctness. The Trustees make no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustees shall not be accountable for the use or application by the Corporation of the Securities or the proceeds thereof.

SECTION 606.   May Hold Securities.  The Trustees, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Corporation or of either Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Trust Indenture Legislation, may otherwise deal with the Corporation with the same rights it would have if it were not a Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent.

SECTION 607.   Money Held in Trust.  Money held by the Trustees in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustees shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Corporation.

SECTION 608.   Compensation and Reimbursement.  The Corporation agrees:

(1)     to pay to each Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);

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(2)     except as otherwise expressly provided herein, to reimburse each Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by such Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and

(3)     to indemnify each Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. A Trustee shall notify the Corporation promptly of any claim for which it may seek indemnity.

The obligations of the Corporation under this Section to compensate each Trustee, to pay or reimburse each Trustee for expenses, disbursements and advances and to indemnify each Trustee shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture. As security for the performance of such obligations of the Corporation, the Trustees shall have a claim prior to the Securities upon all property and funds held or collected by the Trustees as such, except funds held in trust for the payment of principal of (and premium, if any) or interest on particular Securities.

SECTION 609.   Conflicting Interests.  (a)     Each Trustee represents and warrants to the Corporation that at the date of execution and delivery by it of this Indenture, there is no material conflict of interest between its role as Trustee hereunder and its role in any other capacity. Each Trustee shall, within 90 days after ascertaining that such a material conflict of interest exists, either eliminate such conflict of interest or resign in the manner and with the effect specified in Section 611.

(b)     If at any time a Trustee fails to comply with the provisions of Section 609(a), such Trustee shall within 10 days after the expiration of the 90-day period referred to therein, transmit notice of such failure to the Holders in the manner provided for notices to the Holders in Section 106.

(c)     If, notwithstanding the provisions of Section 609(a), a Trustee has such a material conflict of interest, the validity and enforceability of this Indenture and of the Securities issued hereunder shall not be affected in any manner whatsoever by reason only of such material conflict of interest.

SECTION 610.   Corporate Trustee Required; Eligibility.

(a)     There shall at all times be a U.S. Trustee hereunder which shall be a corporation with a combined capital and surplus of at least U.S.$5,000,000 and shall be eligible to act as such under Trust Indenture Legislation. If at any time the U.S. Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.

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(b)     For so long as required by Trust Indenture Legislation, there shall be a Canadian Trustee under this Indenture. The Canadian Trustee shall at all times be a corporation organized under the laws of Canada or any province thereof and authorized under such laws and the laws of the Province of Ontario to carry on trust business therein. If at any time the Canadian Trustee shall cease to be eligible in accordance with this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.

SECTION 611.   Resignation and Removal; Appointment of Successor.  (a)     No resignation or removal of either Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 612.

(b)     Either Trustee may resign at any time with respect to the Securities of one or more series by giving three months’ written notice thereof to the Corporation or such shorter notice as the Corporation may accept as sufficient. If the instrument of acceptance by a successor Trustee required by Section 612 shall not have been delivered to the resigning Trustee within 30 days after the expiration of such three-month period, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.

(c)     Either Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to such Trustee and to the Corporation.

(d)     If at any time:

(1)     either Trustee shall fail to comply with the provisions of Section 609(a) or (b), or

(2)     either Trustee shall cease to be eligible under Section 610 and shall fail to resign after written request therefor by the Corporation or by any Holder, or

(3)     either Trustee shall become incapable of acting or shall become or be adjudged a bankrupt or insolvent or a receiver of either Trustee or of its property shall be appointed or any public officer shall take charge or control of either Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,

then, in any such case, (i) the Corporation, by a Board Resolution, may remove such Trustee with respect to all Securities, or (ii) subject to Trust Indenture Legislation, (A) in the case of clause (1) above, any Holder and any other interested party, and (B) in the case of clauses (2) and (3) above, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, apply to any court of competent jurisdiction for the removal of such Trustee with respect to all Securities and the appointment of a successor Trustee.

(e)     If either Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of the U.S. Trustee or Canadian Trustee for any cause, with respect to the Securities of one or more series, the Corporation, by a Board Resolution, shall

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promptly appoint a successor Trustee with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one U.S. Trustee or Canadian Trustee with respect to the Securities of any particular series); provided, however, that notwithstanding the provisions of Section 611(a), the Company shall not be required to appoint a successor Trustee to the Canadian Trustee if the Canadian Trustee resigns or is removed and a Canadian Trustee under this Indenture is no longer required by Trust Indenture Legislation. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Corporation and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Corporation. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Corporation or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.

(g)     The Corporation shall give notice of each resignation and each removal of a Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series to the Holders of Securities of such series, to the remaining Trustee and to the Holders in the manner provided for in Section 106. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office.

SECTION 612.   Acceptance of Appointment by Successor.  (a)     In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Corporation and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Corporation or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder.

(b)     In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Corporation, the retiring Trustee and each successor Trustee with respect to the Securities of any applicable series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all

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Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than two Trustees, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be Trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Corporation or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. Whenever there is a successor Trustee with respect to one or more (but less than all) series of securities issued pursuant to this Indenture, the terms “Indenture” and “Securities” shall have the meanings specified in the provisos to the respective definitions of those terms in Section 101 which contemplate such situation.

(c)     Upon request of any such successor Trustee, the Corporation shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may be.

(d)     No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article.

SECTION 613.   Merger, Conversion, Amalgamation, Consolidation or Succession to Business.  Any corporation into which either Trustee may be merged or converted or with which it may be amalgamated or consolidated, or any corporation resulting from any merger, conversion, amalgamation or consolidation to which either Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of either Trustee, shall be the successor of such Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by a Trustee then in office, any successor by merger, conversion, amalgamation or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities; and in case at that time any of the Securities shall not have been authenticated, any successor Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or to authenticate Securities in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion, amalgamation or consolidation.

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SECTION 614.   Appointment of Authenticating Agent.  At any time when any of the Securities remain Outstanding, any Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of such Trustee to authenticate Securities of such series and such Trustee shall give written notice of such appointment to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, in the manner provided for in Section 106. Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by a Trustee hereunder. Any such appointment shall be evidenced by an instrument in writing signed by a Responsible Officer of one of the Trustees, and a copy of such instrument shall be promptly furnished to the Corporation. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustees or either of them or the Trustee’s certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustees by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustees by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Corporation and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, or the laws of Canada or any province or territory thereof authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than U.S.$5,000,000 and subject to supervision or examination by U.S. federal or State or Canadian federal or Provincial authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect specified in this Section.

Any corporation into which an Authenticating Agent may be merged or converted or with which it may be amalgamated or consolidated, or any corporation resulting from any merger, conversion, amalgamation or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustees or the Authenticating Agent.

An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee which appointed it and to the Corporation. A Trustee may at any time terminate the agency of an Authenticating Agent which it has appointed by giving written notice thereof to such Authenticating Agent and to the Corporation. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, a Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Corporation and shall give written notice of such appointment to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, in the manner provided for in Section 106. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section.

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The Trustee appointing an Authenticating Agent agrees to pay to such Authenticating Agent from time to time reasonable compensation for its services under this Section, and such Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 608.

If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee’s certificate of authentication, an alternate certificate of authentication in the following form:

This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.

THE R-M TRUST COMPANY,		BANK OF MONTREAL TRUST COMPANY,
as Trustee		as Trustee
By		By
	as Authenticating Agent		as Authenticating Agent
By		By
	Authorized Officer		Authorized Officer

SECTION 615.   Acceptance of Trusts.  The Trustees hereby accept the trusts in this Indenture declared and provided for and agrees to perform the same upon the terms and conditions herein set forth.

ARTICLE SEVEN

HOLDERS’ LISTS

SECTION 701.   Disclosure of Names and Addresses of Holders.  (a)     A Holder may, upon payment to either Trustee of a reasonable fee and subject to compliance with any applicable requirement of Trust Indenture Legislation, require such Trustee to furnish within 15 days after receiving the statutory declaration referred to below, a list setting out (i) the name and address of every registered Holder, (ii) the aggregate principal amount of Securities owned by each registered Holder, and (iii) the aggregate principal amount of Outstanding Securities, each as shown on the records of such Trustee on the day that the statutory declaration is delivered to such Trustee. The statutory declaration shall contain (i) the name and address of the Holder, (ii) where the Holder is a corporation, its name and address for service, and (iii) a statement that the list will not be used except in connection with an effort to influence the voting of the Holders, an offer to acquire Securities, or any other matter relating to the Securities or the affairs of the Corporation. Where the Holder is a corporation, the affidavit or statutory declaration shall be made by a director or officer of the corporation.

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(b)     Every Holder of Securities, by receiving and holding the same, agrees with the Corporation and the Trustees that neither the Corporation nor the Trustees shall be held accountable by reason of the disclosure of such list of the names and addresses of the Holders, regardless of the source from which such information was derived, and that the Trustees shall not be held accountable by reason of mailing any material pursuant to a request made under Trust Indenture Legislation.

ARTICLE EIGHT

AMALGAMATION, CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE

SECTION 801.   Corporation May Consolidate, etc., Only on Certain Terms.  The Corporation shall not amalgamate or consolidate with or merge into any other corporation or convey, transfer or lease its properties and assets substantially as an entirety to any other Person, unless:

(1)     the corporation formed by such amalgamation or consolidation or into which the Corporation is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Corporation substantially as an entirety (A) shall be a corporation, partnership or trust organized and validly existing under the laws of Canada or any province thereof or the United States of America, any state thereof or the District of Columbia and (B) shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustees, in form satisfactory to the Trustees, the Corporation’s obligation for the due and punctual payment of the principal of (and premium, if any, on) and interest on all the Outstanding Securities and the performance and observance of every covenant of this Indenture on the part of the Corporation to be performed or observed;

(2)     immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have occurred or be continuing; and

(3)     the Corporation has delivered to the Trustees an Officers’ Certificate and an Opinion of Counsel, each stating that such amalgamation, consolidation, merger, conveyance, transfer or lease and such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with.

This Section shall only apply to a merger or consolidation in which the Corporation is not the surviving corporation and to conveyances, leases and transfers by the Corporation as transferor or lessor.

SECTION 802.   Successor Person Substituted.  Upon any amalgamation or consolidation by the Corporation with or merger by the Corporation into any other corporation or any conveyance, transfer or lease of the properties and assets of the Corporation substantially as an entirety in accordance with Section 801, the successor Person formed by such amalgamation

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or consolidation or into which the Corporation is merged or the successor Person to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Corporation under this Indenture with the same effect as if such successor Person had been named as the Corporation herein, and in the event of any such conveyance or transfer, the Corporation (which term shall for this purpose mean the Person named as the “Corporation” in the first paragraph of this Indenture or any successor Person which shall theretofore become such in the manner described in Section 801), except in the case of a lease, shall be discharged of all obligations and covenants under this Indenture and the Securities and may be dissolved and liquidated.

ARTICLE NINE

SUPPLEMENTAL INDENTURES

SECTION 901.   Supplemental Indentures Without Consent of Holders.  Without the consent of any Holders, the Corporation, when authorized by or pursuant to a Board Resolution, and the Trustees, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustees, for any of the following purposes:

(1)     to evidence the succession (or successive successions) of another Person to the Corporation and the obligations assumed by such successor in accordance with the provisions of this Indenture; or

(2)     to add to the covenants of the Corporation for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Corporation; or

(3)     to add any additional Events of Default (and if such Events of Default are to be for the benefit of less than all series of Securities, stating that such Events of Default are being included solely for the benefit of such series); or

(4)     to add to or change any of the provisions of this Indenture to the extent necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to provide for uncertificated Securities, in compliance with applicable laws and regulations; or

(5)     to change or eliminate any of the provisions of this Indenture; provided that any such change or elimination shall become effective only when there is no Security Outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or

(6)     to secure the Securities pursuant to the requirements of Section 1005 or otherwise; or

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(7)     to establish the form or terms of Securities of any series as permitted by Sections 201 and 301; or

(8)     to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than two Trustees, pursuant to the requirements of Section 612(b); or

(9)     to close this Indenture with respect to the authentication and delivery of additional series of Securities, to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture; provided that any such action shall not adversely affect the interests of the Holders of Securities of any series in any material respect; or

(10)   to supplement any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the defeasance and discharge of any series of Securities pursuant to Sections 401, 1402 and 1403; provided that any such action shall not adversely affect the interests of the Holders of Securities of such series or any other series of Securities in any material respect.

SECTION 902.     Supplemental Indentures with Consent of Holders.  With the consent of the Holders of not less than a majority in principal amount of all Outstanding Securities affected by such supplemental indenture, by Act of said Holders delivered to the Corporation and the Trustees, the Corporation, when authorized by or pursuant to a Board Resolution, and the Trustees may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby,

(1)     change the Stated Maturity of the principal of, or any instalment of interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502 or the amount thereof provable in bankruptcy pursuant to Section 504, or adversely affect any right of repayment at the option of any Holder of any Security, or change any Place of Payment where, or the Currency in which, any Security or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption or repayment at the option of the Holder, on or after the Redemption Date or Repayment Date, as the case may be), or

(2)     reduce the percentage in principal amount of the Outstanding Securities, or of any series thereof, the consent of whose Holders is required for any such

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supplemental indenture, for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences provided for in this Indenture, or

(3)     modify any of the provisions of this Section, Section 513 or Section 1006, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby.

A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series.

It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.

SECTION 903.   Execution of Supplemental Indentures.  In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustees shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustees may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustees’ own rights, duties or immunities under this Indenture or otherwise.

SECTION 904.   Effect of Supplemental Indentures.  Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.

SECTION 905.   Conformity with Trust Indenture Legislation.  Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Legislation as then in effect.

SECTION 906.   Reference in Securities to Supplemental Indentures.  Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustees, bear a notation in form approved by the Trustees as to any matter provided for in such supplemental indenture. If the Corporation shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustees and the Corporation, to any such supplemental indenture may be prepared and executed by the Corporation and authenticated and delivered by the Trustees in exchange for Outstanding Securities of such series.

SECTION 907.   Notice of Supplemental Indentures.  Promptly after the execution by the Corporation and the Trustees of any supplemental indenture pursuant to the

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provisions of Section 902, the Corporation shall give notice thereof to the Holders of each Outstanding Security so affected, pursuant to Section 106, setting forth in general terms the substance of such supplemental indenture.

ARTICLE TEN

COVENANTS

SECTION 1001.   Payment of Principal, Premium, if any, and Interest.  The Corporation covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay the principal of (and premium, if any) and interest on such Securities in accordance with their terms and this Indenture.

SECTION 1002.   Maintenance of Office or Agency.  The Corporation will maintain an office or agency in each Place of Payment for any series of Securities where Securities of that series may be presented or surrendered for payment, where Securities of that series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Corporation in respect of the Securities of that series and this Indenture may be served.

The Corporation may also from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Corporation of its obligation to maintain an office or agency in accordance with the requirements set forth above for Securities of any series for such purposes. The Corporation will give prompt written notice to the Trustees of any such designation or rescission and of any change in the location of any such other office or agency. Unless otherwise specified with respect to any Securities as contemplated by Section 301 with respect to a series of Securities, the Corporation hereby designates as a Place of Payment for each series of Securities the Corporate Trust Office of the U.S. Trustee in the Borough of Manhattan, The City of New York, and initially appoints such office as Paying Agent in such city and as its agent to receive all such presentations, surrenders, notices and demands. The U.S. Trustee hereby accepts such appointment.

Unless otherwise specified with respect to any Securities pursuant to Section 301, if and so long as the Securities of any series (i) are denominated in a Currency other than U.S Dollars or (ii) may be payable in a Currency other than U.S Dollars, or so long as it is required under any other provision of the Indenture, then the Corporation will maintain with respect to each such series of Securities, or as so required, at least one Exchange Rate Agent.

SECTION 1003.   Money for Securities Payments to Be Held in Trust.  If the Corporation shall at any time act as its own Paying Agent for any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Securities of such series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum in the Currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series and except, if applicable, as provided in Sections 312(b), 312(d) and 312(e)) sufficient to pay the principal (and premium, if

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any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustees of its action or failure so to act.

Whenever the Corporation shall have one or more Paying Agents for any series of Securities, it will, prior to or on each due date of the principal of (and premium, if any, on) or interest on any Securities of that series, deposit with a Paying Agent a sum (in the Currency described in the preceding paragraph) sufficient to pay the principal (and premium, if any, on) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is a Trustee) the Corporation will promptly notify the Trustees of its action or failure so to act.

The Corporation will cause each Paying Agent (other than a Trustee) for any series of Securities to execute and deliver to the Trustees an instrument in which such Paying Agent shall agree with the Trustees, subject to the provisions of this Section, that such Paying Agent will:

(1)     hold all sums held by it for the payment of the principal of (and premium, if any) and interest on Securities of such series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided;

(2)     give the Trustees notice of any default by the Corporation (or any other obligor upon the Securities of such series) in the making of any payment of principal of (or premium, if any) or interest on the Securities of such series; and

(3)     at any time during the continuance of any such default, upon the written request of the Trustees, forthwith pay to the Trustees all sums so held in trust by such Paying Agent.

The Corporation may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Corporation Order direct any Paying Agent to pay, to the Trustees all sums held in trust by the Corporation or such Paying Agent, such sums to be held by the Trustees upon the same trusts as those upon which sums were held by the Corporation or such Paying Agent; and, upon such payment by any Paying Agent to the Trustees, such Paying Agent shall be released from all further liability with respect to such sums.

Except as provided in the Securities of any series, any money deposited with the Trustees or any Paying Agent, or then held by the Corporation, in trust for the payment of the principal of (and premium, if any) or interest on any Security of any series and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Corporation on Corporation Request subject to applicable abandoned property or escheat law, or (if then held by the Corporation) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Corporation for payment thereof, and all liability of the Trustees or such Paying Agent with respect to such trust money, and all liability of the Corporation as trustee thereof,

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shall thereupon cease; provided, however, that the Trustees or such Paying Agent, before being required to make any such repayment, may at the expense of the Corporation cause to be published once, in an Authorized Newspaper, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Corporation.

SECTION 1004.   Corporate Existence.  Subject to Article Eight, the Corporation will at all times maintain its corporate existence and will carry on and conduct its business in a proper and efficient manner and will keep or cause to be kept proper books of account and will file with the Trustees copies of all financial statements of the Corporation furnished or required to be furnished to its shareholders; provided, however, that nothing herein contained shall prevent the Corporation from ceasing to operate any premises or property if, in the opinion of the Board of Directors, it shall be advisable and in the best interests of the Corporation so to do.

SECTION 1005.   Limitation on Liens on Capital Stock of Restricted Subsidiaries.  The Corporation will not, nor will it permit any Subsidiary to, create, assume, incur or suffer to exist any Lien, other than a Purchase Money Lien, upon any capital stock, whether owned on the date of this Indenture or hereafter acquired, of any Restricted Subsidiary, to secure any Obligation (other than the Securities) of the Corporation, any Subsidiary or any other Person, without in any such case making effective provision whereby all of the Outstanding Securities shall be directly secured equally and ratably with such Obligation; provided, however, that the foregoing restrictions shall not apply to (i) Liens on the capital stock of any Restricted Subsidiary securing Obligations outstanding from time to time under any bank credit facility, provided that the principal amount of all such Obligations secured by Liens on the capital stock of any Restricted Subsidiary, at the time of each incurrence of any portion of any such Obligation, does not exceed 15% of the sum of (A) the Corporation’s consolidated shareholders’ equity at the end of the most recently completed fiscal quarter of the Corporation immediately preceding such incurrence for which financial statements are or are required to be available and (B) the aggregate principal amount of all Obligations which are outstanding under any bank credit facility immediately after giving effect to such incurrence and which are secured by Liens on the capital stock of a Restricted Subsidiary, (ii) Liens securing Obligations from the Corporation to any wholly-owned Restricted Subsidiary or from any wholly-owned Restricted Subsidiary to the Corporation or any other wholly-owned Restricted Subsidiary and (iii) Liens, if any, on the capital stock of Federated Insurance Company of Canada and Federated Life Insurance Company of Canada securing the payment of the two 9 5/8% promissory notes issued by the Corporation to Federated Mutual Insurance Company, each in the principal amount of Cdn.$10,222,695, one of which is due March 21, 1995 and the other of which is due March 21, 2000; provided that the Liens referred to in this clause (iii) shall be released on or prior to the 45th day after the date of this Indenture.

SECTION 1006.   Waiver of Certain Covenants.  The Corporation may, with respect to any series of Securities, omit in any particular instance to comply with any term, provision or condition set forth in Section 1004 or 1005, inclusive, if before the time for such compliance the Holders of not less than a majority in principal amount of all Outstanding Securities affected by such term, provision or covenant, by Act of such Holders, waive such compliance in such instance with such term, provision or condition, but no such waiver shall

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extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Corporation and the duties of the Trustees to Holders of Securities of such series in respect of any such term, provision or condition shall remain in full force and effect.

ARTICLE ELEVEN

REDEMPTION OF SECURITIES

SECTION 1101.   Applicability of Article.  Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with the terms of such Securities and (except as otherwise specified as contemplated by Section 301 for Securities of any series) in accordance with this Article.

SECTION 1102.   Election to Redeem; Notice to Trustees.  The election of the Corporation to redeem any Securities shall be evidenced by or pursuant to a Board Resolution. In case of any redemption at the election of the Corporation of less than all the Securities of any series, the Corporation shall, at least 60 days prior to the Redemption Date fixed by the Corporation (unless a shorter notice shall be satisfactory to the Trustees), notify the Trustees of such Redemption Date and of the principal amount of Securities of such series to be redeemed and shall deliver to the Trustees such documentation and records as shall enable the Trustees to select the Securities to be redeemed pursuant to Section 1103. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Corporation shall furnish the Trustees with an Officers’ Certificate evidencing compliance with such restriction.

SECTION 1103.   Selection by Trustees of Securities to Be Redeemed.  If less than all the Securities of any series are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustees, from the Outstanding Securities of such series not previously called for redemption, by such method as the Trustees shall deem fair and appropriate and which may provide for the selection for redemption of portions of the principal of Securities of such series; provided, however, that no such partial redemption shall reduce the portion of the principal amount of a Security not redeemed to less than the minimum authorized denomination for Securities of such series established pursuant to Section 301.

The Trustees shall promptly notify the Corporation in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed.

For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed.

SECTION 1104.   Notice of Redemption.  Except as otherwise specified as contemplated by Section 301, notice of redemption shall be given in the manner provided in

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Section 106 not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed.

All notices of redemption shall state:

(1)     the Redemption Date,

(2)     the Redemption Price,

(3)     if less than all the Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Securities to be redeemed,

(4)     that on the Redemption Date the Redemption Price (together with accrued interest, if any, to the Redemption Date payable as provided in Section 1106) will become due and payable upon each such Security, or the portion thereof, to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date,

(5)     the place or places where such Securities are to be surrendered for payment of the Redemption Price,

(6)     that the redemption is for a sinking fund, if such is the case.

Notice of redemption of Securities to be redeemed at the election of the Corporation shall be given by the Corporation or, at the Corporation’s request, by the Trustees in the name and at the expense of the Corporation.

SECTION 1105.   Deposit of Redemption Price.  Prior to any Redemption Date, the Corporation shall deposit with the Trustees or with a Paying Agent (or, if the Corporation is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money in the Currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such Series and except, if applicable, as provided in Sections 312(b), 312(d) and 312(e)) sufficient to pay the Redemption Price of, and accrued interest on, all the Securities which are to be redeemed on that date.

SECTION 1106.   Securities Payable on Redemption Date.  Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified in the Currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such Series and except, if applicable, as provided in Sections 312(b), 312(d) and 312(e)) (together with accrued interest, if any, to the Redemption Date), and from and after such date (unless the Corporation shall default in the payment of the Redemption Price and accrued interest) such Securities shall, if the same were interest-bearing, cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Corporation at the Redemption Price, together with accrued interest, if any, to the Redemption Date; provided, however, that instalments of interest on Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable (but without interest thereon,

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unless the Corporation shall default in the payment thereof) to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307.

If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) set forth in the Security.

SECTION 1107.   Securities Redeemed in Part.  Any Security which is to be redeemed only in part (pursuant to the provisions of this Article or of Article Twelve) shall be surrendered at a Place of Payment therefor (with, if the Corporation or either Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Corporation and the Trustees or either of them duly executed by, the Holder thereof or such Holder’s attorney duly authorized in writing), and the Corporation shall execute, and the Trustees or either of them shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered.

ARTICLE TWELVE

SINKING FUNDS

SECTION 1201.   Applicability of Article.  Retirements of Securities of any series pursuant to any sinking fund shall be made in accordance with the terms of such Securities and (except as otherwise specified as contemplated by Section 301 for Securities of any series) in accordance with this Article.

The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a “mandatory sinking fund payment”, and any payment in excess of such minimum amount provided for by the terms of Securities of any series is herein referred to as an “optional sinking fund payment”. If provided for by the terms of Securities of any series, the cash amount of any mandatory sinking fund payment may be subject to reduction as provided in Section 1202. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series.

SECTION 1202.   Satisfaction of Sinking Fund Payments with Securities.  Subject to Section 1203, in lieu of making all or any part of any mandatory sinking fund payment with respect to any Securities of a series in cash, the Corporation may at its option (1) deliver to the Trustees Outstanding Securities of a series (other than any previously called for redemption) theretofore purchased or otherwise acquired by the Corporation and/or (2) receive credit for the principal amount of Securities of such series which have been previously delivered to the Trustees by the Corporation or for Securities of such series which have been redeemed either at the election of the Corporation pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case in satisfaction of all or any part of any mandatory sinking fund payment with respect to the

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Securities of the same series required to be made pursuant to the terms of such Securities as provided for by the terms of such series; provided, however, that such Securities have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustees at the Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such mandatory sinking fund payment shall be reduced accordingly.

SECTION 1203.   Redemption of Securities for Sinking Fund.  Not less than 60 days prior to each sinking fund payment date for any series of Securities, the Corporation will deliver to the Trustees an Officers’ Certificate specifying the amount of the next ensuing sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash in the Currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such Series and except, if applicable, as provided in Sections 312(b), 312(d) and 312(e)) and the portion thereof, if any, which is to be satisfied by delivering or crediting Securities of that series pursuant to Section 1202 (which Securities will, if not previously delivered, accompany such certificate) and whether the Corporation intends to exercise its right to make a permitted optional sinking fund payment with respect to such series. Such certificate shall be irrevocable and upon its delivery the Corporation shall be obligated to make the cash payment or payments therein referred to, if any, on or before the next succeeding sinking fund payment date. In the case of the failure of the Corporation to deliver such certificate, the sinking fund payment due on the next succeeding sinking fund payment date for that series shall be paid entirely in cash and shall be sufficient to redeem the principal amount of such Securities subject to a mandatory sinking fund payment without the option to deliver or credit Securities as provided in Section 1202 and without the right to make any optional sinking fund payment, if any, with respect to such series.

Not more than 60 days before each such sinking fund payment date the Trustees shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1103 and cause notice of the redemption thereof to be given in the name of and at the expense of the Corporation in the manner provided in Section 1104. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 1106 and 1107.

Prior to any sinking fund payment date, the Corporation shall pay to the Trustees or a Paying Agent (or, if the Corporation is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) in cash a sum equal to any interest that will accrue to the date fixed for redemption of Securities or portions thereof to be redeemed on such sinking fund payment date pursuant to this Section 1203.

Notwithstanding the foregoing, with respect to a sinking fund for any series of Securities, if at any time the amount of cash to be paid into such sinking fund on the next succeeding sinking fund payment date, together with any unused balance of any preceding sinking fund payment or payments for such series, does not exceed in the aggregate $100,000, the Trustees, unless requested by the Corporation, shall not give the next succeeding notice of the redemption of Securities of such series through the operation of the sinking fund. Any such unused balance of moneys deposited in such sinking fund shall be added to the sinking fund payment for such series to be made in cash on the next succeeding sinking fund payment date or,

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at the request of the Corporation, shall be applied at any time or from time to time to the purchase of Securities of such series, by public or private purchase, in the open market or otherwise, at a purchase price for such Securities (excluding accrued interest and brokerage commissions, for which the Trustees or any paying agent will be reimbursed by the Corporation) determined by the Corporation but not in excess of the principal amount thereof.

ARTICLE THIRTEEN

REPAYMENT AT OPTION OF HOLDERS

SECTION 1301.   Applicability of Article.  Repayment of Securities of any series before their Stated Maturity at the option of Holders thereof shall be made in accordance with the terms of such Securities and (except as otherwise specified as contemplated by Section 301 for Securities of any series) in accordance with this Article.

SECTION 1302.   Repayment of Securities.  Securities of any series subject to repayment in whole or in part at the option of the Holders thereof will, unless otherwise provided in the terms of such Securities, be repaid at a price equal to the principal amount thereof, together with interest, if any, thereon accrued to the Repayment Date specified in or pursuant to the terms of such Securities. The Corporation covenants that on or before the Repayment Date it will deposit with a Trustee or with a Paying Agent (or, if the Corporation is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money in the Currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series and except, if applicable, as provided in Sections 312(b), 312(d) and 312(e)) sufficient to pay the principal (or, if so provided by the terms of the Securities of any series, a percentage of the principal) of, and (except if the Repayment Date shall be an Interest Payment Date) accrued interest on, all the Securities or portions thereof, as the case may be, to be repaid on such date.

SECTION 1303.   Exercise of Option.  Securities of any series subject to repayment at the option of the Holders thereof will contain an “Option to Elect Repayment” form on the reverse of such Securities. To be repaid at the option of the Holder, any Security so providing for such repayment, with the “Option to Elect Repayment” form on the reverse of such Security duly completed by the Holder (or by the Holder’s attorney duly authorized in writing), must be received by the Corporation at the Place of Payment therefor specified in the terms of such Security (or at such other place or places or which the Corporation shall from time time notify the Holders of such Securities) not earlier than 45 days nor later than 30 days prior to the Repayment Date. If less than the entire principal amount of such Security is to be repaid in accordance with the terms of such Security, the principal amount of such Security to be repaid, in increments of the minimum denomination for Securities of such series, and the denomination or denominations of the Security or Securities to be issued to the Holder for the portion of the principal amount of such Security surrendered that is not to be repaid, must be specified. The principal amount of any Security providing for repayment at the option of the Holder thereof may not be repaid in part if, following such repayment, the unpaid principal amount of such Security would be less than the minimum authorized denomination of Securities of the series of which such Security to be repaid is a part. Except as otherwise may be provided by the terms of any Security providing for repayment at the option of the Holder thereof, exercise of the repayment option by the Holder shall be irrevocable unless waived by the Corporation.

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SECTION 1304.   When Securities Presented for Repayment Become Due and Payable.  If Securities of any series providing for repayment at the option of the Holders thereof shall have been surrendered as provided in this Article and as provided by or pursuant to the terms of such Securities, such Securities or the portions thereof, as the case may be, to be repaid shall become due and payable and shall be paid by the Corporation on the Repayment Date therein specified, and on and after such Repayment Date (unless the Corporation shall default in the payment of such Securities on such Repayment Date) such Securities shall, if the same were interest-bearing, cease to bear interest. Upon surrender of any such Security for repayment in accordance with such provisions, the principal amount of such Security so to be repaid shall be paid by the Corporation, together with accrued interest, if any, to the Repayment Date; provided, however, that instalments of interest, if any, whose Stated Maturity is on or prior to the Repayment Date shall be payable (but without interest thereon, unless the Corporation shall default in the payment thereof) to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307.

If the principal amount of any Security surrendered for repayment shall not be so repaid upon surrender thereof, such principal amount (together with interest, if any, thereon accrued to such Repayment Date) shall, until paid, bear interest from the Repayment Date at the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) set forth in such Security.

SECTION 1305.   Securities Repaid in Part.  Upon surrender of any Security which is to be repaid in part only, the Corporation shall execute and one of the Trustees shall authenticate and deliver to the Holder of such Security, without service charge and at the expense of the Corporation, a new Security or Securities of the same series of like tenor, of any authorized denomination specified by the Holder, in an aggregate principal amount equal to and in exchange for the portion of the principal of such Security so surrendered which is not to be repaid.

ARTICLE FOURTEEN

DEFEASANCE AND COVENANT DEFEASANCE

SECTION 1401.   Corporation’s Option to Effect Defeasance or Covenant Defeasance.  Except as otherwise specified as contemplated by Section 301 for Securities of any series, defeasance of the Securities of or within a series under Section 1402, or covenant defeasance of or within a series under Section 1403 shall be made, at the Corporation’s option by Board Resolution at any time, in accordance with the terms of such Securities and in accordance with this Article.

SECTION 1402.   Defeasance and Discharge.  Upon the Corporation’s exercise of the above option applicable to this Section with respect to any Securities of or within a series, the Corporation shall be deemed to have been discharged from its obligations with respect to such

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Outstanding Securities on the date the conditions set forth in Section 1404 are satisfied (hereinafter, “defeasance”). For this purpose, such defeasance means that the Corporation shall be deemed to have paid and discharged the entire indebtedness represented by such Outstanding Securities, which shall thereafter be deemed to be “Outstanding” only for the purposes of Section 1405 and the other Sections of this Indenture referred to in (A) and (B) below, and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustees, at the expense of the Corporation, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of such Outstanding Securities to receive, solely from the trust fund described in Section 1404 and as more fully set forth in such Section, payments in respect of the principal of (and premium, if any) and interest, if any, on such Securities when such payments are due, (B) the Corporation’s obligations with respect to such Securities under Sections 304, 305, 306, 1002 and 1003, (C) the rights, powers, trusts, duties and immunities of the Trustees hereunder and (D) this Article Fourteen. Subject to compliance with this Article Fourteen, the Corporation may exercise its option under this Section 1402 notwithstanding the prior exercise of its option under Section 1403 with respect to such Securities.

SECTION 1403.   Covenant Defeasance.  Upon the Corporation’s exercise of the above option applicable to this Section with respect to any Securities of or within a series, the Corporation shall be released from its obligations under Sections 1004 and 1005, and, if specified pursuant to Section 301, its obligations under any other covenant, with respect to such Outstanding Securities on and after the date the conditions set forth in Section 1404 are satisfied (hereinafter, “covenant defeasance”), and such Securities shall thereafter be deemed to be not “Outstanding” for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with Sections 1004 and 1005, or such other covenant, but shall continue to be deemed “Outstanding” for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to such Outstanding Securities, the Corporation may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section or such other covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or such other covenant or by reason of reference in any such Section or such other covenant to any other provision herein or in any other document and such omission to comply shall not constitute a default or an Event of Default under Section 501(4) or Section 501(8) or otherwise, as the case may be, but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby.

SECTION 1404.   Conditions to Defeasance or Covenant Defeasance.  The following shall be the conditions to application of either Section 1402 or Section 1403 to any Outstanding Securities of or within a series:

(1)     The Corporation shall irrevocably have deposited or caused to be deposited with the Trustees (or another trustee satisfying the requirements of Section 610 who shall agree to comply with the provisions of this Article Fourteen applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (A) an amount (in such Currency in which such Securities are then specified

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as payable at Stated Maturity), or (B) Government Obligations applicable to such Securities (determined on the basis of the Currency in which such Securities are then specified as payable at Stated Maturity) which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment of principal (including any premium) and interest, if any, under such Securities, money in an amount, or (C) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustees, to pay and discharge, and which shall be applied by the Trustees (or other qualifying trustee) to pay and discharge, (i) the principal of (and premium, if any) and interest on such Outstanding Securities on the Stated Maturity (or Redemption Date, if applicable) of such principal or instalment of principal or interest and (ii) any mandatory sinking fund payments or analogous payments applicable to such Outstanding Securities on the day on which such payments are due and payable in accordance with the terms of this Indenture and of such Securities. Before such a deposit, the Corporation may give to the Trustees, in accordance with Section 1102 hereof, a notice of its election to redeem all or any part of such Securities at a future date in accordance with Article Eleven hereof and the terms of such Securities, which notice shall be irrevocable. Such irrevocable redemption notice, if given, shall be given effect in applying the foregoing.

(2)     No Event of Default or event which with notice or lapse of time or both would become an Event of Default with respect to such Securities shall have occurred and be continuing on the date of such deposit or, insofar as paragraphs (6) or (7) of Section 501 are concerned, at any time during the three-month period after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period).

(3)     In the case of an election under either Section 1402 and 1403, the Corporation is not an “insolvent person” within the meaning of the Bankruptcy Act (Canada) on the date of such deposit or at any time during the three-month period after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period).

(4)     Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Corporation is a party or by which it is bound.

(5)     In the case of an election under Section 1402, the Corporation shall have delivered to the Trustees an Opinion of Counsel in the United States stating that (x) the Corporation has received from, or there has been published by, the Internal Revenue Service a ruling, or (y) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of such Outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred.

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(6)     In the case of an election under Section 1403, the Corporation shall have delivered to the Trustees an Opinion of Counsel in the United States to the effect that the Holders of such Outstanding Securities of such series will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred.

(7)     In the case of an election under either Section 1402 or 1403, the Corporation shall have delivered to the Trustees an Opinion of Counsel in Canada to the effect that Holders of the Outstanding Securities will not recognize income, gain or loss for Canadian federal or provincial income tax or other tax purposes as a result of such defeasance or covenant defeasance, as applicable, and will be subject to Canadian federal and provincial income tax and other tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance or covenant defeasance, as applicable, had not occurred.

(8)     In the case of an election under either Section 1402 and 1403, the Corporation shall have delivered to the Trustees an Officers’ Certificate stating that the deposit made by the Corporation pursuant to its election under Section 1402 or 1403 was not made by the Corporation with the intent of preferring the Holders over other creditors of the Corporation or with the intent of defeating, hindering, delaying or defrauding creditors of the Corporation or others.

(9)     Notwithstanding any other provisions of this Section, such defeasance or covenant defeasance shall be effected in compliance with any additional or substitute terms, conditions or limitations in connection therewith pursuant to Section 301.

(10)     The Corporation shall have delivered to the Trustees an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 1402 or the covenant defeasance under Section 1403 (as the case may be) have been complied with.

SECTION 1405.   Deposited Money and Government Obligations to Be Held in Trust; Other Miscellaneous Provisions.  Subject to the provisions of the last paragraph of Section 1003, all money and Government Obligations (or other property as may be provided pursuant to Section 301) (including the proceeds thereof) deposited with the Trustees (or other qualifying trustee—collectively for purposes of this Section 1405, the “Trustee”) pursuant to Section 1404 in respect of any Outstanding Securities of such series shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Corporation acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money need not be segregated from other funds except to the extent required by law.

Unless otherwise specified with respect to any Security pursuant to Section 301, if, after a deposit referred to in Section 1404(1) has been made, (a) the Holder of a Security in respect of which such deposit was made is entitled to, and does, elect pursuant to Section 312(b)

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or the terms of such Security to receive payment in a Currency other than that in which the deposit pursuant to Section 1404(1) has been made in respect of such Security, or (b) a Conversion Event occurs as contemplated in Section 312(d) or 312(e) or by the terms of any Security in respect of which the deposit pursuant to Section 1404(1) has been made, the indebtedness represented by such Security shall be deemed to have been, and will be, fully discharged and satisfied through the payment of the principal of (premium, if any, on), and interest, if any, on such Security as they become due out of the proceeds yielded by converting (from time to time as specified below in the case of any such election) the amount or other property deposited in respect of such Security into the Currency in which such Security becomes payable as a result of such election or Conversion Event based on the applicable Market Exchange Rate for such Currency in effect on the second Business Day prior to each payment date, except, with respect to a Conversion Event, for such Currency in effect (as nearly as feasible) at the time of the Conversion Event.

The Corporation shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the Government Obligations deposited pursuant to Section 1404 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of such Outstanding Securities.

Anything in this Article Fourteen to the contrary notwithstanding, the Trustee shall deliver or pay to the Corporation from time to time upon Corporation Request any money or Government Obligations (or other property and any proceeds therefrom) held by it as provided in Section 1404 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance, as applicable, in accordance with this Article.

ARTICLE FIFTEEN

SUBMISSION TO JURISDICTION

SECTION 1501.   Agent for Service; Submission to Jurisdiction; Waiver of Immunities.

By the execution and delivery of this Indenture, the Corporation (i) acknowledges that it has, by separate written instrument, irrevocably designated and appointed CT Corporation System, 1633 Broadway, New York, NY 10019 as its authorized agent upon which process may be served in any suit or proceeding arising out of or relating to the Securities or this Indenture that may be instituted in any federal or New York state court located in the City of New York, or brought by either Trustee (whether in its individual capacity or in its capacity as Trustee hereunder), and acknowledges that CT Corporation System has accepted such designation, (ii) submits to the jurisdiction of any such court in any such suit or proceeding, and (iii) agrees that service of process upon CT Corporation System and written notice of said service to it (mailed or delivered to its Secretary at its principal office in Toronto, Canada as specified in Section 105 hereof, shall be deemed in every respect effective service of process upon it in any such suit or proceeding. The Corporation further agrees to take any and all action, including the execution and filing of any and all such documents and instruments, as may be necessary to continue such designation and appointment of CT Corporation System in full force and effect so long as this Indenture shall be in full force and effect.

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To the extent that the Corporation has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, the Corporation hereby irrevocably waives such immunity in respect of its obligations under this Indenture and the Securities, to the extent permitted by law.

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This Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Indenture.

IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written.

FAIRFAX FINANCIAL HOLDINGS LIMITED
By:	/s/  Eric P. Salsberg
	Name:	Eric P. Salsberg
	Title:	Vice President, Corporate Affairs
By:
	Name:
	Title:

[Seal]

Attest: “signed”

BANK OF MONTREAL TRUST COMPANY
By:	/s/  Amy Roberts
	Name:	Amy Roberts
	Title:	Assistant Vice President

[Seal]

Attest: “signed”

THE R-M TRUST COMPANY
By:	/s/  E. Earle
	Name:	E. Earle
	Title:	Authorized Signatory

[Seal]

Attest: “signed”

By:	/s/  John A. Moore
	Name:	John A. Moore
	Title:	Authorized Officer

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EX-7.2

Exhibit 7.2

FAIRFAX FINANCIAL HOLDINGS LIMITED

FIRST SUPPLEMENTAL INDENTURE

THIS FIRST SUPPLEMENTAL INDENTURE, dated as of May 9, 2011 (this “Supplemental Indenture”), between FAIRFAX FINANCIAL HOLDINGS LIMITED, a corporation duly organized and existing under the laws of Canada (the “Corporation”), THE BANK OF NEW YORK MELLON, as successor U.S. trustee (the “U.S. Trustee”), and CIBC MELLON TRUST COMPANY, as the successor Canadian trustee (the “Canadian Trustee”, and together with the U.S. Trustee, the “Trustees” and each a “Trustee”).

RECITALS OF THE CORPORATION:

WHEREAS, the Corporation has heretofore executed and delivered to the Trustees an Indenture, dated as of December 1, 1993 (the “Base Indenture”, and together with this Supplemental Indenture, the “Indenture”), providing for the issuance from time to time of one or more series of Securities as defined in the Base Indenture;

WHEREAS, Article Nine of the Base Indenture provides for various matters with respect to any series of Securities issued under the Base Indenture to be established in an indenture supplemental to the Base Indenture;

WHEREAS, subsections 901(2), (7) and (9) of the Base Indenture provides that the Corporation, when authorized by or pursuant to a Board Resolution, and the Trustees, at any time and from time to time, may enter into one or more indentures supplemental to the Base Indenture, for the purpose (among others) of adding to the covenants of the Corporation for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are being included solely for the benefit of such series), to establish the form or terms of Securities of any series as permitted by Sections 201 and 301 of the Base Indenture, and to cure ambiguities with respect to the Base Indenture;

WHEREAS, the entry into this Supplemental Indenture by the parties hereto is in all respects authorized by the provisions of the Base Indenture; and

WHEREAS, all the conditions and requirements necessary to make this Supplemental Indenture, when duly executed and delivered, a valid and binding agreement in accordance with its terms and for the purposes herein expressed, have been performed and fulfilled.

NOW THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:

For and in consideration of the premises and the issuance of the series of Securities provided for herein, the Corporation and the Trustees mutually covenant and agree for the equal and proportionate benefit of the respective Holders of the Securities of such series as follows:

Article One

RELATION TO INDENTURE; DEFINITIONS; RULES OF CONSTRUCTION

SECTION 1.1  Relation to Indenture.  This Supplemental Indenture constitutes an integral part of the Indenture.

SECTION 1.2  Definitions.  The following defined terms shall be inserted in proper alphabetical order into Section 101 of the Base Indenture and shall read as follows:

“Distribution Compliance Period” means the 40-day distribution compliance period as defined in Regulation S.

“Exchange Act” means the United States Securities Exchange Act of 1934, as amended.

“Exempted Security” means any Security that is issued in reliance upon the exemption from the registration requirements of the Securities Act pursuant to Rule 144A or Regulation S.

“QIB” means a “qualified institutional buyer” as defined under Rule 144A.

“Regulation S” means Regulation S under the Securities Act (including any successor regulation thereto), as it may be amended from time to time.

“Regulation S Global Security” means a security in global form which includes the legend set forth in Section 204(b).

“Restricted Global Security” means a security in global form which includes the legend set forth in Section 204(a).

“Rule 144” means Rule 144 under the Securities Act (including any successor regulation thereto), as it may be amended from time to time.

“Rule 144A” means Rule 144A under the Securities Act (including any successor regulation thereto), as it may be amended from time to time.

“Securities Act” means the U.S. Securities Act of 1933, as amended, or any successor statute, and the rules and regulations promulgated by the SEC thereunder.

“U.S. Person” means a U.S. person as defined in Rule 902(k) under the Securities Act.

SECTION 1.3  Rules of Construction.  For all purposes of this Supplemental Indenture, capitalized terms used herein without definition shall have the meanings specified in the Indenture.

Article Two

SUPPLEMENTAL PROVISIONS

SECTION 2.1  Addition of Section 204.  A new Section 204 is hereby inserted into the Base Indenture as follows:

“SECTION 204. Legends. The following legends shall appear on the face of all Exempted Securities issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture.

(a)Private Placement Legend.  Each Exempted Security issued in reliance upon the exemption from the registration requirements of the Securities Act pursuant to Rule 144A shall bear a legend in substantially the following form, together with any other legend that may be required pursuant to Canadian provincial and territorial securities laws:

THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND THIS SECURITY MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.

THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF FAIRFAX FINANCIAL HOLDINGS LIMITED (THE “CORPORATION”) THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) TO THE CORPORATION OR ANY OF ITS SUBSIDIARIES, (II) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (III) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 UNDER THE SECURITIES ACT, (IV) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (IF AVAILABLE), OR (V) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN EACH OF CASES (I) THROUGH (V) IN ACCORDANCE WITH ALL APPLICABLE U.S. STATE SECURITIES LAWS, AND IN CASE (IV) SUBJECT TO THE CORPORATION’S AND THE U.S. TRUSTEES’ RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER

OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.

THIS LEGEND CAN ONLY BE REMOVED IN THE DISCRETION OF THE CORPORATION.

(b)Regulation S Legend.  Each Exempted Security issued in reliance upon the exemption from the registration requirements of the Securities Act pursuant to Regulation S shall bear a legend in substantially the following form, together with any other legend that may be required pursuant to Canadian provincial and territorial securities laws:

THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION ORIGINALLY EXEMPT FROM REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE TRANSFERRED IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ALL APPLICABLE STATE SECURITIES LAWS. TERMS USED ABOVE HAVE THE MEANINGS GIVEN TO THEM IN REGULATION S UNDER THE SECURITIES ACT.

SECTION 2.2  Amendment of Section 305.  The following shall be appended to the end of Section 305 of the Base Indenture:

“Notwithstanding any provision to the contrary herein, so long as a Restricted Global Security or Regulation S Global Security remains outstanding and is held by or on behalf of the depositary of such Exempted Security, transfers of a Restricted Global Security or Regulation S Global Security, in whole or in part, or of any beneficial interest therein, shall only be made in accordance with Section 203, and this Section 305; provided, however, that a beneficial interest in a Restricted Global Security or Regulation S Global Security may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Exempted Security in accordance with the transfer restrictions set forth in the restricted legend on such Exempted Security, if any; provided, further, that during the Distribution Compliance Period, beneficial interests in a Regulation S Global Security may be transferred only to non-U.S. Persons (and in compliance with applicable Canadian provincial and territorial securities laws) or qualified institutional buyers under Rule 144A.

Except for transfers or exchanges made in accordance with the next three succeeding paragraphs, transfers of a Restricted Global Security or Regulation S Global Security shall be limited to transfers of such Security in whole, but not in part, to nominees of the depositary of such Security or to a successor of such depositary or such successor’s nominee.

If the owner of a beneficial interest in the Restricted Global Security at any time wishes to exchange its interest in such Restricted Global Security for an interest in the Regulation S Global Security, or to transfer its interest in such Restricted Global Security to a Person who wishes to take delivery thereof in the form of a beneficial interest in the Regulation S Global Security, such transfer or exchange may

be effected, only in accordance with this paragraph and the rules and procedures of the depositary of such Security or a participant thereof.  Upon receipt by the Security Register from the U.S. Trustee of (A) instructions directing the Security Register to credit or cause to be credited an interest in the Regulation S Global Security in a specified principal amount and to cause to be debited an interest in the Restricted Global Security in such specified principal amount, and (B) a certificate in the form of Exhibit A attached hereto given by the owner of such beneficial interest stating that the transfer of such interest has been made in compliance with the transfer restrictions applicable to the Exempted Security and (x) pursuant to and in accordance with Regulation S or (y) that the Exempted Security being transferred is being transferred in a transaction permitted by Rule 144, then the Security Register shall instruct the depositary to reduce or cause to be reduced the principal amount of the Restricted Global Security and the depositary to increase or cause to be increased the principal amount of the Regulation S Global Security by the aggregate principal amount of the interest in the Restricted Global Security to be exchanged.

If the owner of a beneficial interest in the Regulation S Global Security at any time wishes to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in the Restricted Global Security, such transfer may be effected only in accordance with this paragraph and the rules and procedures of the depositary of such Security or a participant thereof.  Upon receipt by the Security Register from the U.S. Trustee of (A) instructions directing the Security Register to credit or cause to be credited an interest in the Restricted Global Security in a specified principal amount and to cause to be debited an interest in the Regulation S Global Security in such specified principal amount, and (B) a certificate in the form of Exhibit B attached hereto given by the owner of such beneficial interest stating that the transfer of such interest has been made in compliance with the transfer restrictions applicable to the Security and stating that (x) the Person transferring such interest reasonably believes that the Person acquiring such interest is a QIB and is obtaining such interest in a transaction meeting the requirements of Rule 144A and any applicable securities laws of any state of the United States or (y) that the Person transferring such interest is relying on an exemption other than Rule 144A from the registration requirements of the Securities Act and, in such circumstances, such legal opinion as the Corporation or a Trustee may reasonably request to ensure that the requested transfer or exchange is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, then the Security Register shall instruct the depositary to reduce or cause to be reduced the principal amount of the Regulation S Global Security and to increase or cause to be increased the principal amount of the Restricted Global Security by the aggregate principal amount of the interest in the Regulation S Global Security to be exchanged or transferred.

In the event that a Restricted Global Security or Regulation S Global Security is exchanged for Restricted Securities or Regulation S Securities, respectively, in certificated, registered form, such Securities may be exchanged only in accordance with such procedures as are substantially consistent with the preceding 2 paragraphs (including the certification requirements intended to ensure that such transfers comply with Rule 144A or Regulation S, as the case may be) and such other procedures as may from time to time be adopted by the Corporation and the Trustees.

Except as set forth in the second succeeding paragraph, if Exempted Securities are issued upon the transfer, exchange or replacement of Exempted Securities bearing the restricted legends set forth in Section 204 hereof, the Exempted Securities so issued shall bear the restricted legends, and a request to remove such restricted legends from Exempted Securities shall not be honored unless there is delivered to the Corporation such satisfactory evidence, which may include a legal opinion from counsel licensed to practice law in the State of New York, as may be reasonably required by the Corporation, that neither the legend nor the restrictions on transfer set forth therein are required to ensure that transfers thereof comply with the provisions of Rule 144A or Rule 144 under the Securities Act.  Upon provision of such satisfactory evidence, the U.S. Trustee, at the direction of the Corporation, shall authenticate and deliver Exempted Securities that do not bear the legend.

The Trustees shall have no responsibility for any actions taken or not taken by the depositary or a participant thereof, as the case may be.

After the first anniversary of issuance of the Exempted Securities, the Corporation may provide a certificate to a Trustee certifying that the restricted legends set forth in Section 204 hereof may be removed from the Restricted Global Security because such Restricted Global Security has become freely tradable on an unconditional basis by beneficial owners that are not Affiliates of the Corporation.   Upon receipt of such certificate from the Corporation by a Trustee, the restricted legends on the Restricted Global Security will be deemed removed and the restricted CUSIP, ISIN and Common Code numbers, as applicable, will be substituted automatically for unrestricted CUSIP, ISIN and Common Code numbers, as applicable.  No new Global Security will be required.  If the Corporation issues additional Securities of a series, such additional Securities will be issued under separate CUSIP, ISIN and Common Code numbers, as applicable, until they become freely tradable on an unconditional basis, at which time they will be merged with the original Securities.  The additional Securities will vote together with the original Securities as a single class immediately following the reopening, but they will not be fungible with the original Securities until they became freely tradable with and are merged into the CUSIP, ISIN and Common Code numbers, as applicable, for the original Securities.”

SECTION 2.3  Addition of Section 1011.

A new Section 1011 is hereby added to the Base Indenture as follows:

“SECTION 1011.  Available Information; No Resale of Exempted Securities by the Corporation.

So long as any Exempted Securities are “restricted securities” within the meaning of Rule 144 and the Corporation is not subject to the reporting requirements of the Exchange Act, the Corporation will furnish to any Holder of such Exempted Securities in definitive form or Holder of a beneficial interest in a such Exempted Security in global form, or to any prospective purchaser designated by such Holder, upon the request of such Holder, the business and financial information concerning the Corporation called for under paragraph (d)(4) of Rule 144A.  Except as otherwise provided in the Indenture, the Corporation will not, and will not permit any of its Affiliates to, resell any Exempted Securities that constitute “restricted securities”

under Rule 144 except pursuant to an effective registration statement under the Securities Act or Rule 144.”

SECTION 2.4  Insertion of Exhibits.  Exhibits A and B attached hereto shall be attached to the end of the Base Indenture as Exhibits A and B, respectively.

Article Three

MISCELLANEOUS PROVISIONS

SECTION 3.1  Ratification.  The Base Indenture, as supplemented and amended by this Supplemental Indenture, is in all respects hereby adopted, ratified and confirmed.

SECTION 3.2  Counterparts.  This Supplemental Indenture may be executed in any number of counterparts, each of which when so executed shall be deemed an original, but all such counterparts shall together constitute but one and the same Supplemental Indenture.

SECTION 3.3  Governing Law.  This Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York.

SECTION 3.4  Rights of Trustees.  In no event shall the Trustees be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software or hardware) services; it being understood that the Trustees shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.

In no event shall the Trustees be responsible or liable for special, indirect, or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Trustees has been advised of the likelihood of such loss or damage and regardless of the form of action.

SECTION 3.5  Waiver of Jury Trial.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS SUPPLEMENTAL INDENTURE OR THE TRANSACTIONS CONTEMPLATED HEREBY.

[Signature page follows]

IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed as of the day and year first above written.

FAIRFAX FINANCIAL HOLDINGS LIMITED
By:	/s/ Bradley Martin
Name: Bradley Martin
Title: Vice President, Chief Operating Officer and Corporate Secretary
THE BANK OF NEW YORK MELLON, as U.S. Trustee
By:	/s/ Teisha Wright
Name: Teisha Wright
Title: Senior Associate
CIBC MELLON TRUST COMPANY,
as Canadian Trustee
By:	/s/ Manuel Arias
Name: Manuel Arias
Title: Authorized Signatory

[Signature Page to First Supplemental Indenture]

EXHIBIT A
FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM RESTRICTED GLOBAL SECURITY TO REGULATION S GLOBAL SECURITY *

(Transfers of Restricted Global Security to Regulation S Global Security pursuant to Section 305 of the Indenture)

[THE BANK OF NEW YORK MELLON, as U.S. Trustee
101 Barclay Street
Floor 4 East
New York, NY 10286]

[CIBC MELLON TRUST COMPANY, as Canadian Trustee
c/o BNY Trust Company of Canada
320 Bay Street, 11F
Toronto, ON M5H4A6]

Re:     % [NAME OF SECURITY] Due · (the “Securities”)

Reference is hereby made to the indenture dated as of December 1, 1993 (the “Base Indenture”) between Fairfax Financial Holdings Limited, a corporation duly organized and existing under the laws of Canada (the “Corporation”), The Bank of New York Mellon, as successor U.S. trustee (the “U.S. Trustee”) and CIBC Mellon Trust Company, as the successor Canadian trustee (the “Canadian Trustee”, and together with the U.S. Trustee, the “Trustees”), as supplemented by a supplemental indenture dated as of May 9, 2011 between the Corporation and the Trustees (the “Supplemental Indenture”, and together with the Base Indenture, the “Indenture”).  Capitalized terms used but not defined herein shall have the meanings given them in the Indenture.

This letter relates to $             aggregate principal amount of Securities that are held as a beneficial interest in the form of the Restricted Global Security (CUSIP No.         ; ISIN No:              ) with the depositary in the name of [name of transferor] (the “Transferor”).  The Transferor has requested an exchange or transfer of such beneficial interest for an equivalent beneficial interest in the Regulation S Global Security (Common Code No.         ; ISIN No.         ).

In connection with such request, the Transferor does hereby certify that such transfer has been effected in accordance with the transfer restrictions set forth in the Securities and:

(a)with respect to transfers made in reliance on Regulation S (“Regulation S”) under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”), does certify that:

(i)the offer of the Securities was not made to a person in the United States;

(ii)either (i) at the time the buy order is originated the transferee is outside the United States or the Transferor and any person acting on its behalf

A-1

reasonably believe that the transferee is outside the United States or; (ii) the transaction was executed in, on or through the facilities of a designated offshore securities market described in paragraph (b) of Rule 902 of Regulation S and neither the Transferor nor any person acting on its behalf knows that the transaction was pre-arranged with a buyer in the United States;

(iii)no directed selling efforts have been made in the United States by the Transferor, an affiliate thereof or any person their behalf in contravention of the requirements of Rule 903 or 904 of Regulation S, as applicable;

(iv)the transaction is not part of a plan or scheme to evade the registration requirements of the U.S. Securities Act; and

(v)the Transferor is not the Corporation, a distributor of the Securities, an affiliate of the Corporation or any such distributor (except any officer or director who is an affiliate solely by virtue of holding such position) or a person acting on behalf of any of the foregoing.

(b)with respect to transfers made in reliance on Rule 144 the Transferor certifies that the Securities are being transferred in a transaction permitted by Rule 144 under the U.S. Securities Act.

You, the Corporation and the Trustees are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby.  Terms used in this certificate have the meanings set forth in Regulation S.

[Name of Transferor]

By:

Name:

Title:

Date:

cc:Fairfax Financial Holdings Limited

Attn: Paul Rivett, Vice President and Chief Legal Officer

*If the Security is in definitive form, appropriate changes need to be made to the form of this transfer certificate.

A-2

EXHIBIT B
FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM REGULATION S GLOBAL SECURITY TO RESTRICTED GLOBAL SECURITY

(Transfers of Regulation S Global Security to Restricted Global Security pursuant to Section 305 of the Indenture)

[THE BANK OF NEW YORK MELLON, as U.S. Trustee
101 Barclay Street
Floor 4 East
New York, NY 10286]

[CIBC MELLON TRUST COMPANY, as Canadian Trustee
c/o BNY Trust Company of Canada
320 Bay Street, 11F
Toronto, ON M5H4A6]

Re:     % [NAME OF SECURITY] Due · (the “Securities”)

Reference is hereby made to the indenture dated as of December 1, 1993 (the “Base Indenture”) between Fairfax Financial Holdings Limited, a corporation duly organized and existing under the laws of Canada (the “Corporation”), The Bank of New York Mellon, as successor U.S. trustee (the “U.S. Trustee”) and CIBC Mellon Trust Company, as the successor Canadian trustee (the “Canadian Trustee”, and together with the U.S. Trustee, the “Trustees”), as supplemented by a supplemental indenture dated as of May 9, 2011 between the Corporation and the Trustees (the “Supplemental Indenture”, and together with the Base Indenture, the “Indenture”).  Capitalized terms used but not defined herein shall have the meanings given them in the Indenture.

This letter relates to $           aggregate principal amount at maturity of Securities that are held in the form of the Regulation S Global Security with the depositary (Common Code No.        ; ISIN No.        ) in the name of [name of transferor] (the “Transferor”) to effect the transfer of the Securities in exchange for an equivalent beneficial interest in the Restricted Global Security (CUSIP No.         , ISIN No.         ).

In connection with such request, and in respect of such Securities the Transferor does hereby certify that such Securities are being transferred in accordance with the transfer restrictions set forth in the Securities and that:

CHECK ONE BOX BELOW:

othe Transferor is relying on Rule 144A under the United States Securities Act of 1933, as amended (the “Securities Act”) for exemption from such Act’s registration requirements; it is transferring such Securities to a person it reasonably believes is a “qualified institutional buyer” as defined in Rule 144A that purchases for its own account, or for the account of a qualified

B-1

institutional buyer, and to whom the Transferor has given notice that the transfer is made in reliance on Rule 144A and the transfer is being made in accordance with any applicable securities laws of any state of the United States; or

othe Distribution Compliance Period has expired and the Transferor is relying on an exemption other than Rule 144A from the registration requirements of the Securities Act, subject to the Corporation’s and the Trustee’s right prior to any such offer, sale or transfer to require the delivery of an Opinion of Counsel, certification and/or other information satisfactory to each of them.

You, the Corporation and the Trustees are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby.

[Name of Transferor]

By:

Name:

Title:

Date:

cc:Fairfax Financial Holdings Limited

Attn: Paul Rivett, Vice President and Chief Legal Officer

*If the Security is in definitive form, appropriate changes need to be made to the form of this transfer certificate.

B-2

EX-7.3

Exhibit 7.3

DTC Notes: [UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY SUCH CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR ANOTHER NOMINEE OF DTC OR BY DTC OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY, UNLESS AND UNTIL THIS SECURITY IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM.]

Rule 144A Notes: [THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION OF THIS SECURITY, THE HOLDER: (1) REPRESENTS THAT (A) IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT; (2) AGREES THAT IT WILL NOT, PRIOR TO EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THIS SECURITY UNDER RULE 144 UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (D) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER) OR (E) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFEREE IS A PURCHASER WHO IS NOT A QUALIFIED INSTITUTIONAL BUYER, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE BANK OF NEW YORK MELLON, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THIS SECURITY PURSUANT TO CLAUSE 2(D) ABOVE OR UPON ANY TRANSFER OF THIS SECURITY UNDER RULE 144 UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED IN THIS SECURITY, THE TERMS “OFFSHORE TRANSACTION,” “UNITED STATES” AND “U.S. PERSON” HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.]

Reg S Notes: [THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE OR OTHER SECURITIES LAWS. THE HOLDER HEREOF, BY ACQUISITION OF THIS SECURITY, AGREES THAT, PRIOR TO THE EXPIRATION OF THE 40-DAY DISTRIBUTION COMPLIANCE PERIOD (AS DEFINED IN REGULATION S (“REGULATION S”) UNDER THE SECURITIES ACT), NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES (AS DEFINED IN REGULATION S) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, A U.S. PERSON (AS DEFINED IN REGULATION S), EXCEPT TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT IN A TRANSACTION MEETING THE REQUIREMENTS OF THE INDENTURE REFERRED TO HEREIN.

THE FOREGOING LEGEND MAY BE REMOVED FROM THIS NOTE AFTER 40 DAYS BEGINNING ON AND INCLUDING THE LATER OF (A) THE DATE ON WHICH THE NOTES ARE OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) AND (B) THE ORIGINAL ISSUE DATE OF THE NOTES.

WITH RESPECT TO ANY SECURITY THAT IS SOLD PURSUANT TO THE ORIGINAL DISTRIBUTION IN CANADA, UNLESS PERMITTED UNDER APPLICABLE SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE THE DATE THAT IS FOUR MONTHS AND A DAY AFTER THE DATE ON WHICH THIS SECURITY IS ISSUED.]

FAIRFAX FINANCIAL HOLDINGS LIMITED
(Organized under the laws of Canada)

4.850% SENIOR NOTES DUE 2028

	US$
No.	CUSIP:
	ISIN:

Fairfax Financial Holdings Limited, a corporation duly organized and existing under the laws of Canada (herein called the “Corporation”, which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to                  , or its registered assigns, the principal sum of F                  (US$          ) (as may be modified by the Schedule of Increases and Decreases of Global Securities attached here) on April 17, 2028 at the office or agency of the Corporation maintained for such purpose in The City of New York, and to pay interest semi-annually in arrears, on April 17 and October 17 in each year (each, an “Interest Payment Date”), commencing                  , from April 17, 2018 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, at the rate of 4.850% per annum, until the principal hereof is paid or duly provided for. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the April 3 or October 3 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and such Defaulted Interest may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustees (as defined below), notice whereof shall be given to Holders of Securities

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of this series not less than 10 days prior to such Special Record Date, all as more fully provided in said Indenture.

Interest on this Security will be computed on the basis of a 360-day year of twelve 30-day months.

Interest on this Security is subject to any Additional Amounts (as defined below) or Additional Interest (as defined below) that may be payable thereon (as described herein).

This Security is one of the duly authorized Securities of the Corporation (herein called the “Securities”), issued and to be issued in one or more series under an indenture dated as of December 1, 1993 (the “Base Indenture”), among the Corporation, The Bank of New York Mellon, a corporation duly organized and existing under the laws of the State of New York, as the successor U.S. trustee (herein called the “U.S. Trustee”, which term includes any successor U.S. trustee under the Indenture with respect to the Securities in this series), and BNY Trust Company of Canada, a trust company duly incorporated and existing under the laws of Canada, as the successor Canadian trustee (herein called the “Canadian Trustee”, which term includes any successor Canadian trustee under the Indenture with respect to the Securities of this series, and, collectively with the U.S. Trustee, the “Trustees”) as amended by a supplemental indenture dated as of May 9, 2011 (the “Supplemental Indenture” and together with the Base Indenture, the “Indenture”) to which is hereby made for a statement of the respective rights, limitations of rights, obligations, duties and immunities thereunder of the Corporation, the Trustees and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the Securities of the series designated as 4.850% Senior Notes due 2028, unlimited in aggregate principal amount. Additional Securities of this series may be issued by the Corporation from time to time.

The Securities of this series will be direct, unsecured obligations of the Corporation and will rank equally and ratably with all of the Corporation’s other unsecured and unsubordinated indebtedness. The Securities of this series will rank among themselves equally and ratably without preference or priority. The Indenture permits the Corporation from time to time, without notice to or the consent of the Holders of any series of the Securities issued under the Indenture, to create and issue further Securities of this series ranking pari passu with such Securities in all respects and having the same terms as such Securities (except for the issue date, issue price and initial Interest Payment Date following the issue date of such further Securities) and so that such further Securities shall be consolidated and form a single series with, and shall have the same terms as to status, redemption or otherwise as, the Securities of this series; provided that such further Securities will not be issued with the same CUSIP and/or ISIN numbers as this Security unless such further Securities are fungible with this Security for U.S. federal income tax purposes. Any such further Securities shall include any Exchange Securities to be issued in connection with an Exchange Offer (each as defined below under “Registration Rights”), provided that such Exchange Securities shall not be “Exempted Securities” within the meaning of the Indenture and shall not bear the Securities Act legends provided for in Section 204 of the Indenture, and the “Registration Rights” section below (including any Additional Interest (as defined in such section)) shall not apply to such Exchange Securities.

The Securities of this series are not redeemable at the option of the Holder prior to maturity and are not subject to the operation of any sinking fund.

Optional Redemption

The Securities of this series are redeemable at any time prior to January 17, 2028 (the “Par Call Date”), at the option of the Corporation, in whole at any time or in part from time to time, on not less

3

than 15 days’ nor more than 60 days’ prior notice to each Holder of such Securities, upon payment of a Redemption Price equal to the greater of (1) 100% of the principal amount of such Securities to be redeemed; or (2) the sum of the present values of the remaining scheduled payments of principal of and interest on such Securities that would be due if such Securities matured on the Par Call Date (not including any portion of such payments of interest accrued as of the Redemption Date) discounted to the Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 30 basis points (the “Make Whole Amount”), plus, in each case, accrued and unpaid interest to, but excluding, the Redemption Date. The Corporation will pay any interest due on an Interest Payment Date that occurs on or prior to a Redemption Date to the registered Holders of the Securities of this series as of the close of business on the Regular Record Date immediately preceding that Interest Payment Date.

The Securities of this series will be redeemable at any time on or after the Par Call Date, at the option of the Corporation, in whole at any time or in part from time to time, on not less than 15 days’ nor more than 60 days’ prior notice to each Holder, upon payment of a Redemption Price equal to par, together with accrued and unpaid interest to, but excluding, the Redemption Date.

For purposes of determining the Make Whole Amount, the following definitions apply:

“Comparable Treasury Issue” means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the Securities of this series from the applicable Redemption Date to the Par Call Date (the “Remaining Life”) of such Securities to be redeemed that would be utilized at the time of selection, and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the Remaining Life of such Securities to be redeemed.

“Comparable Treasury Price” means, with respect to any Redemption Date, (1) the average of five Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations or (2) if the Quotation Agent obtains fewer than five Reference Treasury Dealer Quotations, the average of any such Reference Treasury Dealer Quotations.

“Quotation Agent” means the Reference Treasury Dealer appointed by the Corporation.

“Reference Treasury Dealer” means (i) Merrill Lynch, Pierce, Fenner & Smith Incorporated (or its affiliates that are Primary Treasury Dealers) and its successors; provided, however, that if the foregoing shall cease to be a primary United States Government securities dealer in the United States of America (a “Primary Treasury Dealer”), the Corporation will substitute therefor another Primary Treasury Dealer, and (ii) any other Primary Treasury Dealer selected by the Corporation.

“Reference Treasury Dealer Quotation” means, with respect to the Reference Treasury Dealer and any Redemption Date, the average, as determined by the Corporation, of the bid and asked prices for the Comparable Treasury Issue (expressed, in each case, as a percentage of its principal amount) quoted in writing to the Quotation Agent by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such Redemption Date.

“Treasury Rate” means, with respect to any Redemption Date, the rate per annum equal to the semi-annual equivalent or interpolated (on a day-count basis) yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. The Treasury Rate will be calculated on the third Business Day preceding such Redemption Date.

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Payment of Additional Amounts

All payments made by the Corporation under or with respect to the Securities of this series shall be made free and clear of, and without withholding or deduction for or on account of, any present or future tax, duty, levy, impost, assessment or other governmental charge imposed or levied by or on behalf of the Government of Canada or of any province or territory thereof or by any authority or agency therein or thereof having power to tax (hereinafter “Taxes”), unless the Corporation is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. If the Corporation is so required to withhold or deduct any amount for or on account of Taxes from any payment made under or with respect to the Securities of this series, and such Securities are not redeemed in accordance with the provisions described under “Redemption for Tax Reasons” below, the Corporation shall pay as interest such additional amounts (“Additional Amounts”) as may be necessary so that the net amount received by each Holder of such Securities or the beneficial owner thereof (including Additional Amounts) after such withholding or deduction will not be less than the amount such Holder or beneficial owner would have received if such Taxes had not been withheld or deducted; provided that no Additional Amounts shall be payable with respect to: (a) any payment made to a Holder of the Securities of this series or beneficial owner who is liable for such Taxes in respect of such Securities, (i) by reason of such Holder or beneficial owner, or any other Person entitled to payments on the Securities of this series, being a person with which the Corporation does not deal at arm’s length (within the meaning of the Income Tax Act (Canada) (the “Canadian Tax Act”)), (ii) by reason of such Holder or beneficial owner being a “specified shareholder” of the Corporation or not dealing at arm’s length with a “specified shareholder” of the Corporation (as defined in subsection 18(5) of the Canadian Tax Act), (iii) by reason of the existence of any present or former connection between such Holder or beneficial owner (or between a fiduciary, settlor, beneficiary, member or shareholder of, or possessor of power over, such Holder or beneficial owner, if such Holder or beneficial owner is an estate, trust, partnership, limited liability company or corporation) and Canada or any province or territory thereof or therein or agency thereof or therein other than the mere acquisition, holding, use or ownership or deemed holding, use or ownership, or receiving payments or enforcing any rights in respect of such Securities as a non-resident or deemed non-resident of Canada or any province or territory thereof or therein or agency thereof or therein, or (iv) by reason of such Holder or beneficial owner’s failure to comply with any certification, identification, documentation or other reporting requirements if compliance is required by law, regulation, administrative practice or an applicable treaty as a pre-condition to exemption from, or a reduction in the rate of deduction or withholding of, such Taxes; (b) any estate, inheritance, gift, sales, transfer, excise or personal property tax or any similar Taxes; (c) any Securities of this series presented for payment more than 15 days after the date on which such payment or such Securities became due and payable or the date on which payment thereof is duly provided for, whichever is later (except to the extent that the Holder would have been entitled to such Additional Amounts had such Securities been presented on the last day of such 15-day period); (d) any withholding or deduction imposed on a payment to a Holder or beneficial owner pursuant to Sections 1471 to 1474 of the U.S. Internal Revenue Code of 1986, as amended (“FATCA”), or any successor version thereof, or any similar legislation imposed by any other governmental authority or any Taxes or penalties that arise from the holder or beneficial owner’s failure to properly comply with its obligations under the Canada-United States Enhanced Tax Information Exchange Agreement Implementation Act (Canada) or any treaty, law or regulation or other official guidance enacted by Canada implementing FATCA or an intergovernmental agreement with respect to FATCA or any similar legislation imposed by any other governmental authority, including, for greater certainty, Part XVIII and Part XIX of the Canadian Tax Act; (e) any Taxes which are payable otherwise than by withholding or deduction from any payment made under or with respect to the Securities of this series; or (f) any combination of the foregoing clauses (a) to (e); nor shall such Additional Amounts be paid with respect to any payment on any Security of this series to a Holder or beneficial owner who is a fiduciary or partnership or, other than the sole beneficial owner of such Security, to the extent that a beneficiary or settlor with respect to such fiduciary, or a member of such partnership or a beneficial owner thereof would not have been entitled to receive a payment of such Additional Amounts had such beneficiary, settlor, member or

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beneficial owner received directly its beneficial or distributive share of such payment (collectively, “Excluded Taxes”). The Corporation shall also (a) make such withholding or deduction and (b) remit the full amount deducted or withheld to the relevant authority in accordance with applicable law. Upon the written request of the U.S. Trustee or a Holder of Securities of this series, the Corporation shall furnish, as soon as reasonably practicable, to the U.S. Trustee or such Holder of Securities, as applicable, certified copies of tax receipts evidencing such payment by the Corporation. The Corporation shall indemnify and hold harmless each Holder of Securities of this series and any beneficial owner thereof and, upon written request of any such Holder or beneficial owner, reimburse such Holder or beneficial owner for the amount of (i) any such Taxes (other than Excluded Taxes) so levied or imposed and paid by such Holder or beneficial owner as a result of any failure of the Corporation to withhold, deduct or remit to the relevant tax authority, on a timely basis, the full amounts required under applicable law; and (ii) any such Taxes (other than Excluded Taxes) so levied or imposed with respect to any reimbursement under the foregoing clause (i), so that the net amount received by such Holder or beneficial owner after such reimbursement would not be less than the net amount such Holder or beneficial owner would have received if such Taxes (other than Excluded Taxes) on such reimbursement had not been imposed.

Whenever in the Indenture there is mentioned, in any context, the payment of principal (and premium, if any), Redemption Price, interest or any other amount payable under or with respect to the Securities of this series, such mention shall be deemed to include mention of the payment of Additional Amounts to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof.

Redemption for Tax Reasons

In the event that the Corporation has become or would become obligated to pay, on the next date on which any amount would be payable under or with respect to the Securities of this series, any Additional Amounts as a result of a change in the laws (including any regulations promulgated thereunder) or treaties of Canada (or any political subdivision or taxing authority thereof or therein), or any change in any official position regarding the application or interpretation of such laws, regulations or treaties, which change is announced or becomes effective on or after the date of issuance of the Securities of this series, then the Corporation may at any time at the Corporation’s option redeem the Securities of this series, in whole, but not in part, at a Redemption Price equal to 100% of their principal amount, plus any interest accrued but not paid to but excluding the Redemption Date.

Selection and Notice of Redemption

In the event that the Corporation chooses to redeem less than all of the Securities of this series, selection of such Securities for redemption will be made by the U.S. Trustee in compliance with the requirements of the principal national securities exchange, if any, on which such Securities are listed, or, if such Securities are not so listed, on a pro rata basis, by lot or by such other method in accordance with DTC’s procedures.

No Securities of this series of a principal amount of $2,000 or less shall be redeemed in part. Notice of redemption of Securities of this series held in definitive registered form will be mailed by first-class mail at least 15 days but not more than 60 days before the Redemption Date to each Holder of such Securities to be redeemed at its registered address. Notice of redemption of Securities of this series held in the form of global certificates will be given to DTC in accordance with its applicable procedures (or the procedures of any successor depositary) at least 15 days but not more than 60 days before the Redemption Date. If any Security of this series is to be redeemed in part only, the notice of redemption that relates to such Security shall state the portion of the principal amount thereof to be redeemed. A new Security of this series in

6

principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Security.

Applicability of Article Eight of the Indenture

Article Eight shall apply to the Securities of this series; provided that Section 801 shall be modified as set forth below (changes indicated in bold and underline):

“Section 801. Corporation May Consolidated, etc. Only on Certain Terms.

The Corporation shall not amalgamate or consolidate with or merge into any other corporation or convey, transfer or lease its properties and assets substantially as an entirety to any other Person, unless:

1.the corporation formed by such amalgamation or consolidation or into which the Corporation is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets (if other than the Corporation) of the Corporation substantially as an entirety (A) shall be a corporation, partnership, company or trust organized and validly existing under the laws of Canada or any province thereof or the United States of America, any state thereof or the District of Columbia and (B) shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustees, in form satisfactory to the Trustees, the Corporation’s obligation for the due and punctual payment of the principal of (and premium, if any, on) and interest on all the Outstanding Securities, all other amounts payable by the Corporation pursuant to the Indenture and the performance and observance of every covenant of this Indenture on the part of the Corporation to be performed or observed;

2.immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have occurred or be continuing; and

3.the Corporation has delivered to the Trustees an Officers’ Certificate and an Opinion of Counsel, each stating that such amalgamation, consolidation, merger, conveyance, transfer or lease and such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with.

This Section shall only apply to a merger or consolidation in which the Corporation is not the surviving corporation and to conveyances, leases and transfer by the Corporation as transferor or lessor.”

Registration Rights

Holders of the Securities of this series shall have the benefits of a registration rights agreement, dated as of the issue date of such Securities, between the Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the initial purchasers (the “Registration Rights Agreement”), pursuant to which the Corporation has agreed to file a registration statement for an exchange offer (an “Exchange Offer”) of the Securities of this series for new Securities (the “Exchange Securities”), identical in all material respects to this Security, except that the Exchange Securities will be registered under the Securities Act, and the transfer restrictions and registration rights relating to this Security will not apply to the Exchange Securities, or in certain circumstances, a shelf registration statement for the resale of the Securities of this series. In the event of a Registration Default (as defined in the Registration Rights Agreement), additional interest (“Additional Interest”) will accrue on this Security at a rate of 0.25% per

7

annum for the first 90-day period of such Registration Default, increasing by an additional 0.25% per annum for each successive 90-day period of such Registration Default, for maximum Additional Interest of 0.50% per annum.

Upon the completion of the Exchange Offer in accordance with the Registration Rights Agreement, the Corporation shall issue and, upon receipt of a written order of the Corporation in accordance with Section 303 of the Indenture, one of the Trustees shall authenticate (i) one or more Exchange Securities in an aggregate principal amount equal to the principal amount of the beneficial interests in the Regulation S Global Security and/or Restricted Global Security representing Securities of this series accepted for exchange by the Corporation, all as set forth in the written instructions of the Corporation. Concurrently with the issuance of such Exchange Securities, the applicable Trustee shall cause the aggregate principal amount of the Regulation S Global Security and/or Restricted Global Security representing Securities of this series accepted for exchange by the Corporation to be reduced in accordance with the beneficial interests tendered in the Exchange Offer in accordance with the procedures of the DTC (or the procedures of any successor depositary).  The Exchange Securities shall not be deemed “Exempted Securities” within the meaning of the Indenture and shall not bear the Securities Act legends provided for in Section 204 of the Indenture, and the paragraph above (including any Additional Interest) shall not apply to such Exchange Securities.

In the event the Corporation is required to pay Additional Interest pursuant to any Registration Rights Agreement, the Corporation will provide written notice to the Trustees of the Corporation’s obligation to pay Additional Interest no later than 15 days prior to the next Interest Payment Date, which notice shall set forth the amount of Additional Interest to be paid by the Corporation. Neither of the Trustees shall at any time be under any duty or responsibility to the Corporation, any Holders or any other Person to determine whether such Additional Interest is payable or the amount thereof.

Events of Default

The Event of Default in respect of this series of Securities are as set forth in Section 501 of the Indenture, except that the Event of Default set forth in Section 501(5) shall be modified as set forth below (changes indicated in bold and underline):

“(5)(A) there shall have occurred a default by the Corporation in the payment, at the stated maturity, of any Debt (including a default with respect to Securities of any series other than that series) in an amount in excess of US$25,000,000 outstanding under or evidenced by any single indenture or instrument (including this Indenture), whether such Debt now exists or shall hereafter be created, and such default shall have continued after any applicable grace period and shall not have been cured or waived or (B) Debt of the Corporation in an amount in excess of US$25,000,000 outstanding under or evidenced by any single indenture or instrument (including this Indenture), whether such Debt now exists or shall hereafter be created, shall have been accelerated or otherwise declared due and payable prior to the stated maturity thereof, and such Debt shall not have been discharged, or such acceleration shall not have been rescinded or annulled, within 10 days after notice thereof shall have been given, by registered or certified mail, to the Corporation by the U.S. Trustee, or to the corporation and the Trustees by the Holders of at least 25% in aggregate principal amount of all of the Securities of the series to which this Section 501(5) applies and are at the time Outstanding; or”

If an Event of Default with respect to the Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.

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Modifications and Amendments

The Indenture permits, with certain exceptions as therein provided, the Corporation and the Trustees to enter into supplemental indentures to the Indenture for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of modifying in any manner the rights of the Holders of the Securities under the Indenture with the consent of the Holders of not less than a majority in principal amount of all Outstanding Securities to be affected. The Indenture also permits the Holders of not less than a majority in principal amount of all Outstanding Securities affected, on behalf of the Holders of all such Securities, to waive compliance by the Corporation with certain provisions of the Indenture. In addition, the Holders of not less than a majority in principal amount of the Outstanding Securities of any series, on behalf of the Holders of all of the Securities of such series (or, in some cases, the Holders of not less than a majority in principal amount of all Outstanding Securities, on behalf of the Holders of all such Securities) may waive certain past defaults under the Indenture and their consequences. Any such consent or waiver shall be conclusive and binding upon the Holder of this Security and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security or any such other Security.

No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Corporation, which is absolute and unconditional, to pay the principal of (and premium, if any, on) and interest on this Security as herein provided and at the place, rate and respective times, and in the coin or currency, herein and in the Indenture prescribed.

Registration; Transfer and Exchange

As provided in the Indenture and subject to certain limitations herein and therein set forth, the transfer of this Security is registerable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Corporation in any place where the principal of and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Corporation, the Security Registrar and any transfer agent duly executed by, the Holder hereof or his attorney duly authorized in writing with such signature guaranteed by a commercial bank reasonably acceptable to the Security Registrar or by a member of a national securities exchange, and thereupon one or more new Securities of this series for the same aggregate principal amount will be issued to the designated transferee or transferees.

The Securities of this series are issuable only in registered form without coupons in minimum denominations of US$2,000 and integral multiples of $1,000 in excess thereof. As provided in the Indenture and subject to certain limitations herein and therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same.

No service charge shall be made for any such transfer or exchange, but the Corporation may require payment of a sum sufficient to cover any tax or other governmental charge imposed in connection therewith.

Prior to due presentment of this Security for registration of transfer, the Corporation, the Trustees and any agent of the Corporation or the Trustees may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security is overdue, and neither the Corporation, the Trustees nor any such agent shall be affected by notice to the contrary.

9

If at any time, (i) DTC or any successor depository notifies the Corporation that it is unwilling or unable to continue as depository for the Securities of this series or if at any time DTC or any successor depository shall no longer be registered as a clearing agency, or in good standing, under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation and a successor depository registered as a clearing agency under the Securities Exchange Act of 1934, as amended, is not appointed by the Corporation within 90 days after the Corporation receives such notice or becomes aware of such condition, as the case may be or (ii) the Corporation determines that the Securities of this series shall no longer be represented by a global Security or Securities, then in such event, the Corporation will execute and either of the Trustees will authenticate and deliver Securities of this series in definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of this Security in exchange for this Security. Such Securities in definitive registered form shall be registered in such names and issued in such authorized denominations as DTC or any successor depository, pursuant to instructions from its direct or indirect participants or otherwise shall instruct such Trustee. Such Trustee shall deliver such Securities to the Persons in whose names such Securities are so registered.

Defined Terms

Unless otherwise defined herein, all terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. To the extent that any term of this Security conflicts with any term of the Indenture, the term of this Security shall supersede and replace the applicable term of the Indenture with respect to the Securities of this series (but not the Securities of any other series). Each Holder of this Security, by accepting the same, agrees to and shall be bound by the provisions of the Indenture.

Governing Law

This Security shall be governed by and construed in accordance with the laws of the State of New York.

Authentication

Unless the certificate of authentication hereon has been manually executed by or on behalf of either the U.S. Trustee or the Canadian Trustee, this Security shall not be entitled to any benefits under the Indenture or be valid or obligatory for any purpose.

[Signature page follows.]

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IN WITNESS WHEREOF, the Corporation has caused this instrument to be duly executed under its corporate seal.

Dated:                  , 2018

FAIRFAX FINANCIAL HOLDINGS LIMITED
By:
	Name: David Bonham
	Title: Vice President and Chief Financial Officer

Attest:
	Paul Rivett, Secretary

TRUSTEE’S CERTIFICATE OF AUTHENTICATION
(Certificate of Authentication may be
executed by either Trustee)

This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture.

THE BANK OF NEW YORK MELLON, as U.S. Trustee
By:
	Authorized Signature

[Signature Page]

SCHEDULE OF INCREASES AND DECREASES OF GLOBAL SECURITY

Initial Principal Amount of Global Security: US$

Date Amount of Increase
in Principal Amount
of Global Security Amount of Decrease
in Principal Amount
of Global Security Principal Amount of
Global Security
After Increase or
Decrease Notation by
Registrar or
Security
Custodian

EX-7.4

Exhibit 7.4

FORM T-1

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE

CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) o

THE BANK OF NEW YORK MELLON

(Exact name of trustee as specified in its charter)

New York (State of incorporation if not a U.S. national bank)	13-5160382 (I.R.S. employer identification no.)
225 Liberty Street, New York, NY (Address of principal executive offices)	10286 (Zip code)

FAIRFAX FINANCIAL HOLDINGS LIMITED

(Exact name of obligor as specified in its charter)

Canada (State or other jurisdiction of incorporation or organization)	Not Applicable (I.R.S. employer identification no.)
Suite 800, 95 Wellington Street West Toronto, Ontario (Address of principal executive offices)	M5J 2N7 (Zip code)

4.850% Senior Notes due 2028 of Fairfax Financial Holdings Limited

(Title of the indenture securities)

1.General information.  Furnish the following information as to the trustee:

(a)Name and address of each examining or supervising authority to which it is subject.

Name	Address
Superintendent of Banks of the State of New York	One State Street, New York, NY 10004-1417
Federal Reserve Bank of New York	33 Liberty Street New York, NY 10045
Federal Deposit Insurance Corporation	550 17th Street, N.W. Washington, D.C. 20429 3501 N. Fairfax Drive Arlington, VA 22226
The Clearing House Association, L.L.C.	450 West 33rd Street New York, NY 10001

(b)Whether it is authorized to exercise corporate trust powers.

Yes.

2.Affiliations with Obligor.

If any of the obligors is an affiliate of the trustee, describe each such affiliation.

None.

3-15.Pursuant to General Instruction B of the Form T-1, no responses are included for Items 3-15 of this Form T-1 because, to the best of The Bank of New York Mellon’s knowledge, the obligors are not in default on any securities issued under indentures under which The Bank of New York Mellon acts as trustee and the trustee is not a foreign trustee as provided under Item 15.

16.List of Exhibits.

The following exhibits are to be filed as a part of the statement of eligibility of The Bank of New York Mellon.  Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit

hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of 1939 (the “Act”) and 17 C.F.R. 229.10(d).

1.A copy of the Organization Certificate of The Bank of New York Mellon (formerly The Bank of New York and formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers.  (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672, Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637 and Exhibit 1 to Form T-1 filed with Registration Statement No. 333-121195 and Exhibit 1 to Form T-1 filed with Registration Statement No. 333-152735.)

4.A copy of the existing By-Laws of the trustee.

6.The consent of the trustee required by Section 321(b) of the Act.  (Exhibit 6 to Form T-1 filed with Registration Statement No. 333-152735.)

7.A copy of the latest report of condition of the trustee published pursuant to law or to the requirements of its supervising or examining authority.

SIGNATURE

Pursuant to the requirements of the Act, the trustee, The Bank of New York Mellon, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 21st day of November 2018.

THE BANK OF NEW YORK MELLON
By:	/s/Teresa Wyszomierski
	Teresa Wyszomierski
	Vice President

EXHIBIT 4

BY-LAWS
of
The Bank of New York Mellon
As Amended and Restated through February 12, 2018

Table of Contents

	Page No.
ARTICLE I Stockholders	3
SECTION 1.1. Annual Meeting	3
SECTION 1.2. Special Meetings	3
SECTION 1.3. Notice of Meetings	3
SECTION 1.4. Quorum of Stockholders	3
ARTICLE II Board of Directors	4
SECTION 2.1. Number of Directors	4
SECTION 2.2. [Reserved]	4
SECTION 2.3. Meetings of the Board	4
SECTION 2.4. Quorum of Directors and Action by the Board	5
SECTION 2.5. Removal of Directors	5
SECTION 2.6. Vacancies	5
SECTION 2.7. Compensation	5
SECTION 2.8. Minutes	5
SECTION 2.9. Reports	5
SECTION 2.10 Action without a Meeting	5
ARTICLE III [Reserved]	5
ARTICLE IV Committees	5
SECTION 4.1. Committees of Directors Officers and/or Other Persons	5
SECTION 4.2. Compensation	6
SECTION 4.3. Manner of Acting	6
ARTICLE V Officers	6
SECTION 5.1. Principal Executive Officers	6
SECTION 5.2. Senior Executive Officers	6
SECTION 5.3. Other Senior Officers	6
SECTION 5.4. Appointed Officers	7
SECTION 5.5. Bonds	7
SECTION 5.6. General Supervisory Powers	7
SECTION 5.7. Executive Officers	7
SECTION 5.8. Senior Vice Presidents, Managing Directors, Directors, First Vice Presidents and Vice Presidents	7
SECTION 5.9. Secretary	7
SECTION 5.10. Treasurer	7
SECTION 5.11. Comptroller	7

SECTION 5.12. Chief Auditor	8
SECTION 5.13. Other Officers	8
ARTICLE VI Signing Authorities	8
SECTION 6.1. [Intentionally Omitted]	8
SECTION 6.2. Senior Signing Powers	8
SECTION 6.3. Limited Signing Powers	8
SECTION 6.4. Powers of Attorney	8
SECTION 6.5. Chief Auditor	9
ARTICLE VII Indemnification	9
SECTION 7.1. Indemnification	9
SECTION 7.2. Other Indemnification	9
ARTICLE VIII Capital Stock	9
SECTION 8.1. Certificates of Stock	9
SECTION 8.2. Transfer of Certificates	9
SECTION 8.3. New Certificates	10
SECTION 8.4. Holders of Record	10
ARTICLE IX Corporate Seal	10
SECTION 9.1. The Seal	10
ARTICLE X Amendment of By-Laws	10
SECTION 10.1. Procedure for Amendments	10

2

BY-LAWS

of

The Bank of New York Mellon

As amended and restated through February 12, 2018

ARTICLE I

STOCKHOLDERS

SECTION 1.1. Annual Meeting. The annual meeting of stockholders of The Bank of New York Mellon (hereinafter called the Bank) for the election of directors and the transaction of such other business as properly may be brought before such meeting shall be held within the first four months of the Bank’s fiscal year, unless otherwise permitted under the New York Banking Law (hereinafter called the Banking Law) or applicable regulation, at the principal office of the Bank, or such other place in the city in which such principal office is located as shall be specified in the notice of such meeting, on such day and at such hour as may be fixed by the Board of Directors (hereinafter called the Board).

SECTION 1.2. Special Meetings. Special meetings of the stockholders of the Bank (hereinafter called the stockholders) may be called by the Board, the Executive Chairman of the Board, the Chief Executive Officer or the President and shall be called upon the written request of the holders of record of not less than twenty percent of the outstanding shares of stock of the Bank entitled to vote at the meeting requested to be called. Such meetings of stockholders shall be held on such day and at such hour and at such place, within or without the State of New York, as may be fixed by the Board.

SECTION 1.3. Notice of Meetings. Notice of each meeting of stockholders shall be given in writing, not less than ten nor more than fifty days before the date of the meeting, to each stockholder entitled to vote at such meeting, and shall state the place, date and hour of the meeting and the purpose or purposes for which the meeting is called. If mailed, such notice shall be deemed to have been given when deposited in the United States mail, with postage thereon prepaid, directed to the stockholder at his or her address as it appears on the record of stockholders.

Notwithstanding the foregoing, notice of meeting need not be given to any stockholder who submits a signed waiver of notice, in person or by proxy, whether before or after the meeting. The attendance of any stockholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him or her.

SECTION 1.4. Quorum of Stockholders. The holders of a majority of the shares entitled to vote thereat shall constitute a quorum at a meeting of stockholders for the transaction of any business. At all meetings of stockholders, a quorum being present, all matters, except as otherwise provided by law or the Organization Certificate of the Bank, shall be authorized by a majority of the votes cast at the meeting by the stockholders present in person or by proxy and entitled to vote thereon. The stockholders present may adjourn the meeting despite the absence of a quorum. Any action that may be taken by the stockholders at a duly convened meeting may also be taken pursuant to waiver of notice thereof and upon the unanimous written consent of all shareholders of the Bank; such consent shall set forth the action so taken and shall be filed with the Secretary.

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ARTICLE II

BOARD OF DIRECTORS

SECTION 2.1. Number of Directors. The business of the Bank shall be managed by the Board, which shall consist of such number of directors, within the minimum and maximum limits prescribed in the Organization Certificate of the Bank and the Banking Law, as from time-to-time shall be determined by the vote of a majority of the directors then in office or by the stockholders. In the event of any increase in the number of directors, additional directors shall be elected in the manner herein prescribed for the filling of vacancies. No decrease in the number of directors shall shorten the term of any incumbent director. Each director or, where applicable, all directors collectively must possess such qualifications as to citizenship, age and active service as an officer or employee of the Bank as are prescribed by the Banking Law. Directors shall hold office until the next annual meeting of the stockholders and until their successors are elected and have qualified.

SECTION 2.2. [Reserved]

SECTION 2.3. Meetings of the Board. An annual meeting of the Board shall be held in each year within fifteen days after the annual meeting of stockholders. Regular meetings of the Board shall be held on such day and at such hour as the directors may fix from time-to-time, and no notice thereof need be given. In case any date for a meeting shall fall on a public holiday, such meeting shall be held on the next succeeding business day. Special meetings of the Board may be held at any time upon the call of the Executive Chairman of the Board or the Chief Executive Officer or, in their absence, another principal executive officer and shall be called upon the written request of any three directors.

Meetings of the Board shall be held at such places within or without the State of New York as may be fixed by the Board. If no place is so fixed, meetings of the Board shall be held at the principal office of the Bank in the City of New York.

Notices of the annual and special meetings of the Board shall be given by delivery, mail, telegraph, facsimile, e-mail, radio or cable to each director at his or her usual place of business or residence address not later than noon, New York time, on the third day prior to the day on which the meeting is to be held or, if given personally or by telephone, not later than noon, New York time, on the day before the day on which the meeting is to be held.

Notice of a meeting of the Board need not be given to any director who submits a signed waiver of notice whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to him or her.

A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. Except for announcement at the meeting, notice of the time and place of any adjourned meeting need not be given.

Members of the Board may participate in a meeting of the Board by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting.

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SECTION 2.4. Quorum of Directors and Action by the Board. One-third of the entire Board, but in no case less than five directors, shall constitute a quorum for the transaction of business. Except as otherwise required by law, the Organization Certificate of the Bank or these By-laws, the vote of a majority of the directors present at a meeting at the time of such vote, if a quorum is then present, shall be the act of the Board.

SECTION 2.5. Removal of Directors. Any one or more of the directors may be removed for cause by action of the Board. Any or all of the directors may be removed with or without cause by vote of the stockholders.

SECTION 2.6. Vacancies. All vacancies in the office of director shall be filled by election by the stockholders, except that vacancies not exceeding one-third of the entire Board may be filled by the affirmative vote of a majority of the directors in office and the directors so elected shall hold office for the balance of the unexpired term.

SECTION 2.7. Compensation. Members of the Board, except members who are officers of The Bank of New York Mellon Corporation or any of its subsidiaries, shall be entitled to receive such compensation and such fees for attendance as the Board shall fix from time-to-time.

SECTION 2.8. Minutes. Regular minutes of the proceedings of the Board shall be kept in books to be provided for that purpose which shall always be open for the inspection of any director.

SECTION 2.9. Reports. At each regular meeting of the Board there shall be submitted a report of the concerns and business of the Bank, including such reports as shall be required by law or by regulation of the authorities having jurisdiction over the Bank.

SECTION 2.10. Action without a Meeting. Any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, to the extent permitted by law and regulation, may be taken without a meeting if all members of the Board or of such committee, as the case may be, consent thereto in writing and such consent is filed with the minutes of the proceedings of the Board or such committee.

ARTICLE III
[Reserved]

ARTICLE IV
COMMITTEES

SECTION 4.1. Committees of Directors, Officers and/or Other Persons. The Board may appoint, or authorize the Executive Chairman or the Chief Executive Officer or, in their absence, another principal executive officer to appoint, from time-to-time, such other committees consisting of directors, officers and/or other persons and having such powers, duties and functions in or relating to the business and affairs of the Bank as the Board may determine. Each such committee and each member thereof shall serve at the pleasure of the Board and,

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in the case of any committee appointed by the Executive Chairman, the Chief Executive Officer or another principal executive officer, at the pleasure of the Executive Chairman or of the Chief Executive Officer or of such other principal executive officer. A majority of all members of any such committee may determine the rules of order and procedure of such committee and the time and place of its meetings, unless the Board, or, in the case of any committee appointed by the Executive Chairman, the Chief Executive Officer or another principal executive officer, the Executive Chairman or the Chief Executive Officer or such other principal executive officer, shall otherwise provide.

SECTION 4.2. Compensation. Members of committees, other than officers of The Bank of New York Mellon Corporation or any of its subsidiaries, shall be paid such compensation and such other fees for attendance at meetings as the Board shall determine from time-to-time.

SECTION 4.3. Manner of Acting. Members of committees of directors, officers and/or other persons appointed by the Board, or by any committee or officer pursuant to Section 4.2, may participate in a meeting of such committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting.

ARTICLE V
OFFICERS

SECTION 5.1. Principal Executive Officers. The Board at its annual meeting shall elect from its number an Executive Chairman of the Board (hereinafter called the Executive Chairman), a Chief Executive Officer, and a President. The Board may designate the Chief Executive Officer or the President, or one of the persons holding titles provided in Section 5.2, to act as and carry the additional title of Chief Operating Officer. Officers elected pursuant to this Section 5.1 shall hold office during the pleasure of the Board, which may fill any vacancy and change the designation of the Chief Operating Officer at any regular or special meeting. Officers elected under this section may be removed with or without cause by the Board.

SECTION 5.2. Senior Executive Officers. The Board shall elect one or more senior executive officers, any of whom may be designated Vice Chairman of the Board, Senior Executive Vice President or Executive Vice President and may elect such other officers with such titles as may be specified upon election. The order of seniority shall be determined by the Chief Executive Officer with the approval of the Board. Senior executive officers elected under this section may be removed with or without cause by the Board.

SECTION 5.3. Other Senior Officers. The Board shall elect a Secretary (who shall be a different person from the Chief Executive Officer and the President); a Treasurer; a Comptroller; a Chief Auditor; and such other officers with such titles as may be specified upon election. The order of seniority shall be determined by the Chief Executive Officer with the approval of the Board. The Chief Executive Officer or, in his or her absence, another principal executive officer, may remove any of the officers elected under this section with or without cause with the approval of the Board.

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SECTION 5.4. Appointed Officers. Officers of the Bank carrying titles set forth in this section may be appointed and removed with or without cause by the Chief Executive Officer or any Senior Executive Vice President or Executive Vice President. Such officers may include one or more Managing Directors; one or more Directors; one or more Senior Vice Presidents; one or more First Vice Presidents; one or more Vice Presidents; one or more Senior Associates; one or more Associates; and such other officers with such titles as may be specified upon appointment.

SECTION 5.5. Bonds. The Board may require any or all officers or employees to give bonds from time-to-time.

SECTION 5.6. General Supervisory Powers. The Chief Executive Officer or, in his or her absence, another principal executive officer, shall have general supervision of the policies and operations of the Bank which shall in every case be subject to the direction and control of the Board.

SECTION 5.7. Executive Officers. The principal executive officers, the senior executive officers and Executive Vice Presidents shall participate in the supervision of the policies and operations of the Bank as directed by the Chief Executive Officer. In his or her absence another principal executive officer, or a senior executive officer in the order of seniority determined by the Chief Executive Officer as provided in Section 5.2, shall have general supervision of such policies and operations.

SECTION 5.8. Senior Vice Presidents, Managing Directors, Directors, First Vice Presidents and Vice Presidents. Senior Vice Presidents, Managing Directors, Directors, First Vice Presidents and Vice Presidents shall participate in the supervision of operations of the Bank as directed by the Chief Executive Officer. They shall perform such other duties as shall be assigned to them by the Board, the Chief Executive Officer or an executive officer.

SECTION 5.9. Secretary. The Secretary shall keep the minutes of all meetings of the Board; shall attend to the giving of such notices of meetings as may be required by these By-laws and shall perform all the duties assigned to him or her by the Board or the Chief Executive Officer and in general those duties incident to the office of Secretary. He or she shall have custody of the corporate seal and shall have authority to affix the same to any documents requiring such seal and to attest the same. In the absence of the Secretary, an Assistant Secretary shall act in his or her stead.

SECTION 5.10. Treasurer. The Treasurer shall have the care and custody of all moneys, funds and other property of the Bank which may come into his or her hands and shall perform such other duties as may be assigned to him or her from time-to-time by the Board or the Chief Executive Officer.

SECTION 5.11. Comptroller. The Comptroller shall exercise general supervision over, and be responsible for, all matters pertaining to the accounting and bookkeeping of the Bank. He or she shall keep the permanent records of property and indebtedness and of all transactions bearing on the financial affairs of the Bank. The Comptroller shall perform such additional duties as shall be assigned to him or her by the Board or the Chief Executive Officer. He or she shall at any time on the request of any three directors report to the Board such matters concerning the affairs

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of the Bank as, in his, her or their judgment, should be brought to the attention of the directors.

SECTION 5.12. Chief Auditor. The Chief Auditor shall report to the Board, which may be through a committee of the Board. He or she shall be responsible for the planning and direction of the internal auditing function and the evaluation of the internal control safeguards of the Bank. He or she shall perform such additional duties as shall be assigned by the Board, any committee of the Board or the Chief Executive Officer.

SECTION 5.13. Other Officers. All officers whose duties are not described by these By-laws shall perform such duties as may be designated by the Chief Executive Officer or any officer authorized by him or her to do so.

ARTICLE VI

SIGNING AUTHORITIES

SECTION 6.1 [Intentionally Omitted]

SECTION 6.2 Senior Signing Powers. The Chief Executive Officer, the President, any Vice Chairman, any Senior Executive Vice President and any Executive Vice President is authorized to accept, endorse, execute or sign any document, instrument or paper in the name of, or on behalf of, the Bank in all transactions arising out of, or in connection with, the normal course of the Bank’s business or in any fiduciary, representative or agency capacity and, when required, to affix the seal of the Bank thereto. In such instances as in the judgment of the Chief Executive Officer, the President, any Vice Chairman, any Senior Executive Vice President or any Executive Vice President may be proper and desirable, any one of said officers may authorize in writing, including email and other forms of electronic communication or approval, from time-to-time any other officer to have the powers set forth in this section applicable only to the performance or discharge of the duties of such officer within his or her particular division or function. Any officer of the Bank authorized in or pursuant to Section 6.3 to have any of the powers set forth therein, other than the officer signing pursuant to this Section 6.2, is authorized to attest to the seal of the Bank on any documents requiring such seal.

SECTION 6.3. Limited Signing Powers. In such instances as in the judgment of the Chief Executive Officer, the President, any Vice Chairman, any Senior Executive Vice President, or any Executive Vice President may be proper and desirable, any one of said officers may authorize in writing, including email and other forms of electronic communication or approval, from time to time any other officer, employee or individual to have the limited signing powers or limited power to affix the seal of the Bank to specified classes of documents set forth in a resolution of the Board applicable only to the performance or discharge of the duties of such officer, employee or individual within his or her division or function.

SECTION 6.4 Powers of Attorney. All powers of attorney on behalf of the Bank shall be executed by any officer of the Bank jointly with the Chief Executive Officer, the President, any Vice Chairman, any Senior Executive Vice President, any Executive Vice President, any Senior Vice President, any Managing Director, or any Director provided that the execution by such Senior Vice President, Managing Director or Director of said Power of Attorney shall be applicable only to the performance or discharge of the duties of such officer within his or her particular

8

division or function. Any such power of attorney may, however, be executed by any officer or officers or person or persons who may be specifically authorized to execute the same by the Board of Directors and, at foreign branches only, by any two officers provided one of such officers is the Branch Manager.

SECTION 6.5. Chief Auditor. The Chief Auditor or any officer designated by the Chief Auditor is authorized to certify in the name of, or on behalf of the Bank, in its own right or in a fiduciary or representative capacity, as to the accuracy and completeness of any account, schedule of assets, or other document, instrument or paper requiring such certification.

ARTICLE VII

INDEMNIFICATION

SECTION 7.1. Indemnification. Any person made, or threatened to be made, a party to any action or proceeding, whether civil or criminal, by reason of the fact that he, she, or his or her testator or intestate, is or was a director or officer of the Bank or serves or served any other corporation in any capacity, at the request of the Bank, shall be indemnified by the Bank and the Bank may advance his or her related expenses, to the full extent permitted by law. Persons who are not directors or officers of the Bank may be similarly indemnified in respect of service to the Bank or to another such entity at the request of the Bank to the extent the Board at any time denominates any of such persons as entitled to indemnification and/or advancement of expenses. For purposes of this Article VII, the Bank may consider the term “Bank” to include any corporation which has been merged or consolidated into the Bank or of which the Bank has acquired all or substantially all the assets in a transaction requiring authorization by the shareholders of the corporation whose assets were acquired.

SECTION 7.2. Other Indemnification. The foregoing provisions of this Article VII shall apply in respect of all alleged or actual causes of action accrued before, on or after September 1, 1964, except that, as to any such cause of action which accrued before such date, the Bank may provide, and any person concerned shall be entitled to, indemnification under and pursuant to any statutory provision or principle of common law in effect prior to such date, all to the extent permitted by law.

ARTICLE VIII
CAPITAL STOCK

SECTION 8.1. Certificates of Stock. Certificates of stock shall be signed by the President or a Vice President and the Secretary or an Assistant Secretary and may bear the seal of the Bank. The signatures and the seal may be facsimile to the extent permitted by law. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Bank with the same effect as if he or she were such officer at the date of issue.

SECTION 8.2. Transfer of Certificates. Separate books of transfer shall be kept in which transfers of shares of stock shall be entered by the person entitled to make such transfer or his or her attorney-in-fact, upon surrender of the certificate for the shares to be transferred properly endorsed by the stockholder, or by his or her assignee, agent or legal representative, who shall furnish proper evidence of assignment, authority or legal succession, or by the agent of one of the foregoing

9

thereunto duly authorized by an instrument duly executed and filed with the Bank in accordance with regular commercial practice.

SECTION 8.3. New Certificates. No new certificate shall be issued until the former certificate is cancelled except in the circumstances provided in this section. The holder of any shares of the Bank shall immediately notify it of any loss, theft or destruction of any stock certificate representing such shares. New certificates for shares of stock may be issued to replace such certificates upon satisfactory proof of the loss, theft or destruction and upon such other terms and conditions as the Board of Directors, the Chief Executive Officer or any person designated by either of them may from time to time determine.

SECTION 8.4. Holders of Record. The Bank shall be entitled to treat any person in whose name shares of stock of the Bank stand on its books as the holder and owner in fact thereof for all purposes, and it shall not be bound to recognize any equitable or other claims to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by law.

ARTICLE IX

CORPORATE SEAL

SECTION 9.1. The Seal. The Board shall provide a corporate seal for the Bank which may be affixed to any document, certificate or paper and attested by such individuals as provided by these By-laws or as the Board may from time-to-time determine.

ARTICLE X

AMENDMENT OF BY-LAWS

SECTION 10.1. Procedure for Amendments. By-laws of the Bank may be adopted, amended or repealed by vote of the stockholders entitled to vote in any election of directors. By-laws may also be adopted, amended or repealed by a majority of all the directors then in office. Any By-law adopted by the Board may be amended or repealed by the stockholders entitled to vote thereon as hereinabove provided. If any By-law regulating an impending election of directors is adopted, amended or repealed by the Board, there shall be set forth in the notice of the next meeting of stockholders for the election of directors the By-law so adopted, amended or repealed, together with a concise statement of the changes made.

I,                                                             Secretary of The Bank of New York Mellon, New York, N.Y. 10286, do hereby certify that the foregoing is a complete, true and correct copy of the By-laws of The Bank of New York Mellon, and that the same are in full force and effect at this date.

Secretary

Dated:

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EXHIBIT 7

Consolidated Report of Condition of

THE BANK OF NEW YORK MELLON

of 240 Greenwich Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,

a member of the Federal Reserve System, at the close of business September 30, 2018, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.

	Dollar amounts in thousands
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin	4,600,000
Interest-bearing balances	85,855,000
Securities:
Held-to-maturity securities	34,476,000
Available-for-sale securities	81,104,000
Equity securities with readily determinable fair values not held for trading	32,000
Federal funds sold and securities purchased under agreements to resell:
Federal funds sold in domestic offices	0
Securities purchased under agreements to resell	16,303,000
Loans and lease financing receivables:
Loans and leases held for sale	0
Loans and leases held for investment	23,853,000
LESS: Allowance for loan and lease losses	113,000
Loans and leases held for investment, net of allowance	23,740,000
Trading assets	2,024,000
Premises and fixed assets (including capitalized leases)	1,585,000
Other real estate owned	2,000
Investments in unconsolidated subsidiaries and associated companies	602,000
Direct and indirect investments in real estate ventures	0
Intangible assets:	7,124,000
Other assets	15,663,000
Total assets	273,110,000
LIABILITIES
Deposits:
In domestic offices	130,331,000
Noninterest-bearing	59,785,000
Interest-bearing	70,546,000
In foreign offices, Edge and Agreement subsidiaries, and IBFs	105,650,000
Noninterest-bearing	6,387,000
Interest-bearing	99,263,000
Federal funds purchased and securities sold under agreements to repurchase:
Federal funds purchased in domestic offices	97,000
Securities sold under agreements to repurchase	346,000
Trading liabilities	2,118,000
Other borrowed money: (includes mortgage indebtedness and obligations under capitalized leases)	1,479,000
Not applicable
Not applicable
Subordinated notes and debentures	515,000
Other liabilities	5,497,000
Total liabilities	246,033,000
EQUITY CAPITAL
Perpetual preferred stock and related surplus	0
Common stock	1,135,000
Surplus (exclude all surplus related to preferred stock)	10,942,000
Retained earnings	16,210,000
Accumulated other comprehensive income	-1,560,000
Other equity capital components	0
Total bank equity capital	26,727,000
Noncontrolling (minority) interests in consolidated subsidiaries	350,000
Total equity capital	27,077,000
Total liabilities and equity capital	273,110,000

I, Michael Santomassimo, Chief Financial Officer of the above-named bank do hereby declare that this Report of Condition is true and correct to the best of my knowledge and belief.

Michael Santomassimo

Chief Financial Officer

We, the undersigned directors, attest to the correctness of this statement of resources and liabilities. We declare that it has been examined by us, and to the best of our knowledge and belief has been prepared in conformance with the instructions and is true and correct.

Charles W. Scharf
Samuel C. Scott
Joseph J. Echevarria Directors

EX-99.1

Exhibit 99.1

LETTER OF TRANSMITTAL

FAIRFAX FINANCIAL HOLDINGS LIMITED

OFFER TO EXCHANGE

US$600,000,000 OF ITS 4.850% SENIOR NOTES DUE 2028

Pursuant to the Prospectus dated         , 2018

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 p.m., NEW YORK CITY TIME, ON        , 2019 UNLESS EXTENDED (THE “EXPIRATION DATE”). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. WHERE THE EXPIRATION DATE HAS BEEN EXTENDED, TENDERS PURSUANT TO THE EXCHANGE OFFER AS OF THE PREVIOUSLY SCHEDULED EXPIRATION DATE MAY NOT BE WITHDRAWN AFTER THE DATE OF THE PREVIOUSLY SCHEDULED EXPIRATION DATE.

DELIVERY TO:

Bank of New York Mellon, Exchange Agent

BY HAND, MAIL OR OVERNIGHT COURIER:

Bank of New York Mellon

Corporate Trust — Reorg

111 Sanders Creek Parkway

East Syracuse, NY  13057

For Information Call: (315) 414-3034 BY FACSIMILE: (732) 667-9408 (for eligible institutions only) Attention: Tiffany Castor Confirm Receipt of Facsimile by Telephone: (315) 414-3034

Delivery of this Letter of Transmittal to an address other than as set forth above, or transmission of this Letter of Transmittal via facsimile to a number other than as set forth above, will not constitute a valid delivery. Please read the instructions set forth in this Letter of Transmittal carefully before completing any box below.

The undersigned acknowledges that he, she or it has received this Letter of Transmittal (the “Letter”) and the Prospectus dated                 , 2018 of Fairfax Financial Holdings Limited (the “Issuer”), as it may be amended from time to time (the “Prospectus”), relating to its offer to registered holders (“Holders”) of its issued and outstanding 4.850% Senior Notes due 2028 issued on April 17, 2018 (the “Initial Notes”) to exchange up to US$600,000,000 aggregate principal amount of Initial Notes for a like principal amount of its 4.850% Senior Notes due 2028 (the “Exchange Notes”) which have been registered under the United States Securities Act of 1933, as amended (the “Securities Act”). The Prospectus and this Letter together constitute the Issuer’s offer to exchange its Initial Notes for a like principal amount of its Exchange Notes (the “Exchange Offer”).

As described herein, all Initial Notes properly tendered for exchange will either be exchanged for Exchange Notes or will be returned promptly after the termination or withdrawal of the Exchange Offer. For each Initial Note accepted for exchange, the Holder of such Initial Note will receive an Exchange Note having a principal amount equal to that of, and representing the same indebtedness as that represented by, the surrendered Initial Note. The Exchange Notes will accrue interest from the last interest payment date on which interest was paid on the Initial Notes or, if no interest has been paid on the Initial Notes, from the issue date of the Initial Notes. Accordingly, registered Holders of Exchange Notes on the relevant record date for the first interest payment date following the consummation of the Exchange Offer will receive interest accruing from the last interest payment date on which interest was paid or, if no interest has been paid, from the issue date of the Initial Notes. However, if that record date occurs prior to completion of the Exchange Offer, then the interest payable on the first interest payment date following the completion of the Exchange Offer will be

paid to the registered Holders of the Initial Notes on that record date. Initial Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer. Holders of Initial Notes whose Initial Notes are accepted for exchange will not receive any payment in respect of accrued interest on such Initial Notes otherwise payable on any interest payment date the record date for which occurs on or after consummation of the Exchange Offer.

This Letter is to be completed by a Holder of Initial Notes if certificates are to be forwarded herewith. Holders of Initial Notes that are tendering by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company (“DTC” or the “Book-Entry Transfer Facility”) can execute the tender through DTC’s Automated Tender Offer Program (“ATOP”), for which this transaction will be eligible, pursuant to the procedures set forth in the Prospectus under the heading “The Exchange Offer — Terms of the Exchange Offer — Book-Entry Transfer”. Holders of Initial Notes who wish to tender and whose certificates are not immediately available, or who are unable to deliver their certificates, this Letter or any other documents required by this Letter or confirmation of the book-entry tender of their Initial Notes into the Exchange Agent’s account at the Book-Entry Transfer Facility (a “Book-Entry Confirmation”) to the Exchange Agent on or prior to the Expiration Date, must tender their Initial Notes according to the guaranteed delivery procedures set forth in the Prospectus under the heading “The Exchange Offer — Terms of the Exchange Offer — Guaranteed Delivery Procedures”. See Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent.

Tenders by book-entry transfer shall be made by delivering an Agent’s Message in lieu of this Letter. The term “Agent’s Message” means a message, transmitted by the Book-Entry Transfer Facility to and received by the Exchange Agent and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the tendering DTC participant stating that such participant has received and agrees to be bound by this Letter and that the Issuer may enforce this Letter against such participant.

List below the Initial Notes to which this Letter relates. If the space provided below is inadequate, the principal amount of Initial Notes should be listed on a separate signed schedule affixed hereto.

DESCRIPTION OF INITIAL NOTES

(1)	(2)	(3)
Name(s) and Address(es) of Registered Holder(s) of Initial Notes, Exactly as the Name of the Participant Appears on the Book-Entry Transfer Facility Security Position Listing (Please fill in, if blank)	Aggregate Principal Amount	Principal Amount of Initial Note(s) Tendered*
	TOTAL

* Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Initial Notes represented by the Initial Notes indicated in column 2. Initial Notes tendered hereby must be in denominations of principal amount of US$2,000 and any integral multiple of US$1,000 in excess thereof. See Instruction 1.

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oCHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:

Name of Tendering Institution:

Account Number:

Transaction Code Number:

BY CREDITING THE INITIAL NOTES TO THE EXCHANGE AGENT’S ACCOUNT WITH THE BOOK-ENTRY TRANSFER FACILITY’S ATOP AND BY COMPLYING WITH THE APPLICABLE ATOP PROCEDURES WITH RESPECT TO THE EXCHANGE OFFER, THE HOLDER OF THE INITIAL NOTES ACKNOWLEDGES AND AGREES TO BE BOUND BY THE TERMS OF THIS LETTER OF TRANSMITTAL AND CONFIRMS ON BEHALF OF ITSELF AND THE BENEFICIAL OWNER OF SUCH INITIAL NOTES ALL PROVISIONS OF THIS LETTER OF TRANSMITTAL APPLICABLE TO IT AND SUCH BENEFICIAL OWNERS AS FULLY AS IF SUCH BENEFICIAL OWNERS HAD COMPLETED THE INFORMATION REQUIRED HEREIN AND EXECUTED AND TRANSMITTED THIS LETTER OF TRANSMITTAL.

oCHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:

Name(s) of Registered Holder(s):

Window Ticket Number (if any):

Date of Execution of Notice of Guaranteed Delivery:

Name of Institution That Guaranteed Delivery:

Account Number:

Transaction Code Number:

oCHECK HERE IF YOU ARE A BROKER-DEALER ENTITLED, PURSUANT TO THE TERMS OF THE EXCHANGE AND REGISTRATION RIGHTS AGREEMENT REFERRED TO IN THE PROSPECTUS, TO RECEIVE, AND WISH TO RECEIVE, 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO WITHIN 180 DAYS AFTER THE EXPIRATION DATE.

Name:

Address:

IF THE UNDERSIGNED IS NOT A BROKER-DEALER, THE UNDERSIGNED REPRESENTS THAT IT IS NOT PARTICIPATING IN, AND DOES NOT INTEND TO PARTICIPATE IN, A DISTRIBUTION OF EXCHANGE NOTES. IF THE UNDERSIGNED IS A BROKER-DEALER THAT WILL RECEIVE EXCHANGE NOTES FOR ITS OWN ACCOUNT IN EXCHANGE FOR INITIAL NOTES THAT WERE ACQUIRED AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES, IT ACKNOWLEDGES AND REPRESENTS THAT IT WILL DELIVER A PROSPECTUS MEETING THE REQUIREMENTS OF THE SECURITIES ACT, IN CONNECTION WITH ANY RESALE OF SUCH EXCHANGE NOTES; HOWEVER, BY SO ACKNOWLEDGING AND REPRESENTING AND BY DELIVERING SUCH A PROSPECTUS THE UNDERSIGNED WILL NOT BE DEEMED TO ADMIT THAT IT IS AN “UNDERWRITER” WITHIN THE MEANING OF THE SECURITIES ACT. IF THE UNDERSIGNED IS A BROKER-DEALER THAT WILL RECEIVE EXCHANGE NOTES, IT REPRESENTS THAT THE INITIAL NOTES TO BE EXCHANGED FOR THE EXCHANGE NOTES WERE ACQUIRED AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES. IN ADDITION,

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SUCH BROKER-DEALER REPRESENTS THAT IT IS NOT ACTING ON BEHALF OF ANY PERSON WHO COULD NOT TRUTHFULLY MAKE THE FOREGOING REPRESENTATIONS.

PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

Ladies and Gentlemen:

Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Issuer the aggregate principal amount of Initial Notes indicated above. Subject to, and effective upon, the acceptance for exchange of the Initial Notes tendered hereby, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Issuer all right, title and interest in and to such Initial Notes as are being tendered hereby.

The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the undersigned’s true and lawful agent and attorney-in-fact with respect to such tendered Initial Notes, with full power of substitution (with full knowledge that the Exchange Agent also acts as agent of the Issuer), among other things, to cause the Initial Notes to be assigned, transferred and exchanged.

The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Initial Notes, and to acquire Exchange Notes issuable upon the exchange of such tendered Initial Notes, and that, when such Initial Notes are accepted for exchange, the Issuer will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim when the same are accepted by the Issuer. The undersigned hereby further represents and warrants that any Exchange Notes acquired in exchange for Initial Notes tendered hereby will have been acquired in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the undersigned, that neither the Holder of such Initial Notes nor any such other person is participating in, intends to participate in or has an arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of Initial Notes or Exchange Notes, that neither the Holder of such Initial Notes nor any such other person is an “affiliate,” as defined in Rule 405 under the Securities Act, of the Issuer and that neither the Holder of such Initial Notes nor such other person is acting on behalf of any person who could not truthfully make the foregoing representations and warranties.

The undersigned acknowledges that this Exchange Offer is being made in reliance on interpretations by the staff of the Securities and Exchange Commission (the “SEC”), as set forth in no-action letters issued to third parties, that the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Initial Notes may be offered for resale, resold and otherwise transferred by Holders thereof (other than any such Holder that is a broker-dealer or an “affiliate” of the Issuer 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 such Exchange Notes are acquired in the ordinary course of such Holder’s business, at the time of commencement of the Exchange Offer such Holder has no arrangement or understanding with any person to participate in a distribution of such Exchange Notes, and such Holder is not engaged in, and does not intend to engage in, a distribution of such Exchange Notes. However, the SEC has not considered the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the SEC would make a similar determination with respect to the Exchange Offer as in other circumstances. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes and has no arrangement or understanding to participate in a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Initial Notes, it represents that the Initial Notes to be exchanged for the Exchange Notes were acquired by it as a result of market-making activities or other trading activities and acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus meeting the requirements of the Securities Act, the undersigned will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act.

The SEC has taken the position that such broker-dealers may fulfill their prospectus delivery requirements with respect to the Exchange Notes (other than a resale of Exchange Notes received in exchange for an unsold allotment from the original sale of the Initial Notes) with the Prospectus. The Prospectus, as it may be amended or supplemented from time to time, may be used by certain broker-dealers (as specified in the Registration Rights Agreement referenced in the Prospectus) (“Participating Broker-Dealers”) for a period of time, starting on the Expiration Date and ending on the earlier of the close of business 180 days after the Expiration Date in connection with the sale or transfer of such Exchange Notes or such time as such Participating Broker-Dealers no longer own any Initial Notes, other than Initial Notes acquired from the Issuer. The Issuer has agreed that, for such period of time, it will make the Prospectus (as it may be amended or supplemented) available to such a broker-dealer which elects to exchange Initial Notes, acquired for its own account as a result of market making or other trading activities, for Exchange Notes pursuant to the Exchange Offer for use in connection with any resale of such Exchange Notes. By accepting the Exchange Offer, each broker-dealer that receives Exchange Notes pursuant to the Exchange Offer acknowledges and agrees to notify the Issuer prior to using the Prospectus in connection with the sale or transfer of Exchange Notes and that, upon receipt of notice from the Issuer of the happening of any event which makes any statement in the Prospectus untrue in any material respect or which requires the making of any changes in the Prospectus in order to

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make the statements therein (in light of the circumstances under which they were made) not misleading, such broker-dealer will suspend use of the Prospectus until (i) the Issuer has amended or supplemented the Prospectus to correct such misstatement or omission and (ii) the Issuer has furnished copies of the amended or supplemented Prospectus to such broker-dealer or, if the Issuer has not otherwise agreed to furnish such copies and declines to do so after such broker-dealer so requests, such broker-dealer has obtained a copy of such amended or supplemented Prospectus as filed with the SEC. Except as described above, the Prospectus may not be used for or in connection with an offer to resell, a resale or any other retransfer of Exchange Notes. A broker-dealer that acquired Initial Notes in a transaction other than as part of its market-making activities or other trading activities will not be able to participate in the Exchange Offer.

The undersigned will, upon request, execute and deliver any additional documents deemed by the Issuer to be necessary or desirable to complete the sale, assignment and transfer of the Initial Notes tendered hereby. All authority conferred or agreed to be conferred in this Letter and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in the Prospectus under the heading “Exchange Offer — Terms of the Exchange Offer — Withdrawal of Tenders”.

Unless otherwise indicated herein in the box entitled “Special Issuance Instructions” below, please credit the account indicated above maintained at the Book-Entry Transfer Facility.

THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED “DESCRIPTION OF INITIAL NOTES” ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE INITIAL NOTES AS SET FORTH IN SUCH BOX ABOVE.

PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.

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PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)

SIGNATURE(S) OF OWNER	DATE
Area Code and Telephone Number

If a Holder is tendering an Initial Note, this Letter must be signed by the registered Holder(s) as the name(s) appear(s) on the certificate(s) for the Initial Note or by any person(s) authorized to become registered Holder(s) by endorsements and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, please set forth the full title. See Instruction 2.

Name(s):
	(PLEASE TYPE OR PRINT)
Capacity:
Address:

SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 2) SIGNATURE(S) GUARANTEED BY AN ELIGIBLE INSTITUTION:

(AUTHORIZED SIGNATURE)

(TITLE)

(NAME AND FIRM)

DATED:

(PLEASE COMPLETE ACCOMPANYING FORM W-9)

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SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 2 and 3)

To be completed ONLY if Initial Notes delivered by book-entry transfer which are not accepted for exchange are to be returned by credit to an account maintained at the Book-Entry Transfer Facility other than the account indicated above.

Issue: Exchange Notes and/or Initial
Notes to:
	(Please Type or Print)

Names(s) and Taxpayer Identification or Social Security Number(s):

(Please Type or Print)

Address:

(Zip Code)

(Complete Form W-9)

oCredit unexchanged Initial Notes delivered by book-entry transfer to the Book-Entry Transfer Facility account set forth below:

(Book-Entry Transfer Facility Account Number, if Applicable)

IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.

INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER TO EXCHANGE ANY AND ALL OUTSTANDING 4.850% SENIOR NOTES DUE 2028, ISSUED ON APRIL 17, 2018, OF FAIRFAX FINANCIAL HOLDINGS LIMITED FOR 4.850% SENIOR NOTES DUE 2028 OF FAIRFAX FINANCIAL HOLDINGS LIMITED THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

1.Delivery of this Letter and notes; guaranteed delivery procedures. This Letter is to be completed by Holders of Initial Notes if certificates are to be forwarded herewith. If tenders are to be made pursuant to the procedures for delivery by book-entry transfer set forth in the Prospectus under the heading “The Exchange Offer — Terms of the Exchange Offer — Book-Entry Transfer”, Holders of Initial Notes must deliver a Book-Entry Confirmation. Certificates for all physically tendered Initial Notes, as well as a properly completed and duly executed Letter (or manually signed facsimile hereof), with any required signature guarantees, and any other documents required by this Letter, or Book-Entry Confirmation, as the case may be, must be received by the Exchange Agent on or prior to the Expiration Date, or the tendering Holder must comply with the

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guaranteed delivery procedures set forth below. Initial Notes tendered hereby must be in denominations of principal amount of US$2,000 and any integral multiple of US$1,000 in excess thereof.

Holders whose certificates for Initial Notes are not immediately available or who cannot deliver their certificates and all other required documents to the Exchange Agent on or prior to the Expiration Date, or who cannot complete the procedure for book-entry transfer on a timely basis, may tender their Initial Notes pursuant to the guaranteed delivery procedures set forth in the Prospectus under the heading “The Exchange Offer — Terms of the Exchange Offer — Guaranteed Delivery Procedures”. Pursuant to such procedures, (i) such tender must be made through an Eligible Institution (as defined herein), (ii) prior to 5:00 p.m., New York City time, on the Expiration Date, the Exchange Agent must receive from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Issuer (by facsimile transmission (if no medallion guarantee is required), mail or hand delivery), setting forth the name and address of the Holder of Initial Notes and the amount of Initial Notes tendered stating that the tender is being made thereby and guaranteeing that within three business days after the Expiration Date, the certificates for all physically tendered Initial Notes, in proper form for transfer, an executed copy of this Letter as the case may be, and any other documents required by this Letter, or a Book-Entry Confirmation, as the case may be, will be deposited by the Eligible Institution with the Exchange Agent, and (iii) the certificates for all physically tendered Initial Notes, in proper form for transfer, and all other documents required by this Letter, or a Book-Entry Confirmation, are received by the Exchange Agent within three business days after the Expiration Date.

The method of delivery of this Letter and all or any other required documents is at the election and risk of the tendering Holders, but the delivery will be deemed made only when actually received or confirmed by the Exchange Agent. If this Letter and all other required documents are sent by mail, it is suggested that the mailing be registered mail, properly insured, with return receipt requested, made sufficiently in advance of the Expiration Date to permit delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. See the “Exchange Offer — Terms of the Exchange Offer” section of the Prospectus.

2.Signatures on this Letter; bond powers; guarantee of signatures. If this Letter is signed by a participant in the Book-Entry Transfer Facility, the signature must correspond exactly with the name as it appears on the security position listing the Holders of the Initial Notes.

If any tendered Initial Notes are owned of record by two or more joint owners, all of such owners must sign this Letter.

If this Letter is signed by registered Holder(s) of the Initial Notes specified herein and tendered thereby, no separate bond powers are required unless the Exchange Notes are to be issued, or untendered Initial Notes are to be reissued, to a person other than the registered Holder. Signatures on such bond power(s) must be guaranteed by an Eligible Institution.

If this Letter or any bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Issuer, proper evidence satisfactory to the Issuer of their authority to so act must be submitted.

SIGNATURES ON BOND POWERS REQUIRED BY THIS INSTRUCTION 2 MUST BE GUARANTEED BY A FIRM WHICH IS A BANK, BROKER, DEALER, CREDIT UNION, SAVINGS ASSOCIATION OR OTHER ENTITY WHICH IS A MEMBER IN GOOD STANDING OF A RECOGNIZED MEDALLION PROGRAM APPROVED BY THE SECURITIES TRANSFER ASSOCIATION INC., INCLUDING THE SECURITIES TRANSFER AGENTS MEDALLION PROGRAM (“STAMP”), THE STOCK EXCHANGE MEDALLION PROGRAM (“SEMP”) AND THE NEW YORK STOCK EXCHANGE MEDALLION SIGNATURE PROGRAM (“MSP”), OR ANY OTHER “ELIGIBLE GUARANTOR INSTITUTION” (AS DEFINED IN RULE 17AD-15 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED) (EACH OF THE FOREGOING, AN “ELIGIBLE INSTITUTION”).

SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE INSTITUTION, PROVIDED THE INITIAL NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF INITIAL NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A SECURITY POSITION LISTING AS THE HOLDER OF SUCH INITIAL NOTES) WHO HAS NOT COMPLETED THE BOX ENTITLED “SPECIAL ISSUANCE INSTRUCTIONS” IN THIS LETTER, OR (II) FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION.

3.Special issuance instructions. Holders tendering Initial Notes by book-entry transfer may request that Initial Notes not exchanged be credited to such account maintained at the Book-Entry Transfer Facility as such Holder may designate herein.

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4.Transfer taxes. The Issuer will pay all transfer taxes, if any, applicable to the transfer of Initial Notes to it or its order pursuant to the Exchange Offer. If, however, Exchange Notes and/or substitute Initial Notes not exchanged are to be delivered to, or are to be registered or issued in the name of, any person other than the registered Holder of the Initial Notes tendered hereby, or if tendered Initial Notes are registered in the name of any person other than the person signing this Letter, or if a transfer tax is imposed for any reason other than the transfer of Initial Notes to the Issuer or its order pursuant to the Exchange Offer, the amount of any such transfer taxes (whether 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 herewith, the amount of such transfer taxes will be billed directly to such tendering Holder.

Except as provided in this instruction 5, it will not be necessary for transfer tax stamps to be affixed to the Initial Notes specified in this Letter.

5.Waiver of conditions. The Issuer reserves the absolute right to waive satisfaction of any or all conditions enumerated in the Prospectus.

6.No conditional tenders. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering Holders of Initial Notes, by execution of this Letter, shall waive any right to receive notice of the acceptance of their Initial Notes for exchange.

None of the Issuer, the Exchange Agent nor any other person is obligated to give notice of any defect or irregularity with respect to any tender of Initial Notes nor shall any of them incur any liability for failure to give any such notice.

7.Withdrawal rights. Tenders of Initial Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date.

For a withdrawal of a tender of Initial Notes to be effective, a written notice of withdrawal must be received by the Exchange Agent at the address set forth above prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having tendered the Initial Notes to be withdrawn (the “Depositor”), (ii) identify the Initial Notes to be withdrawn (including the principal amount of such Initial Notes), (iii) specify the number of the account at the Book-Entry Transfer Facility from which the Initial Notes were tendered and specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Initial Notes and otherwise comply with the procedures of such facility, (iv) contain a statement that such Holder is withdrawing its election to have such Initial Notes exchanged, (v) be signed by the Holder in the same manner as the original signature on the Letter by which such Initial Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer to have the Trustee with respect to the Initial Notes register the transfer of such Initial Notes in the name of the person withdrawing the tender and (vi) specify the name in which such Initial Notes are registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Issuer, whose determination shall be final and binding on all parties. Any Initial Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Initial Notes so withdrawn are validly retendered. Any Initial Notes that have been tendered for exchange but which are not exchanged for any reason (including the termination or withdrawal of the Exchange Offer) will be returned to the tendering Holder thereof without cost to such Holder by being credited to an account maintained with the Book-Entry Transfer Facility for the Initial Notes promptly after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Initial Notes may be retendered by following the procedures described above at any time on or prior to 5:00 p.m., New York City time, on the Expiration Date.

8.Requests for assistance or additional copies. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus and this Letter, and requests for Notices of Guaranteed Delivery and other related documents may be directed to the Exchange Agent, at the address and telephone number indicated above.

IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF, IF APPLICABLE), OR AN AGENT’S MESSAGE TO THE BOOK-ENTRY TRANSFER FACILITY TOGETHER WITH CONFIRMATION OF BOOK-ENTRY AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M. NEW YORK CITY TIME, ON THE EXPIRATION DATE.

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EX-99.2

Exhibit 99.2

NOTICE OF GUARANTEED DELIVERY FOR

FAIRFAX FINANCIAL HOLDINGS LIMITED

OFFER TO EXCHANGE

US$600,000,000 of its 4.850% Senior Notes due 2028

This form or one substantially equivalent hereto must be used to accept the Exchange Offer of Fairfax Financial Holdings Limited (the “Issuer”) made pursuant to the Prospectus, dated                , 2018, as it may be amended from time to time (the “Prospectus”), if the certificates for the outstanding 4.850% Senior Notes due 2028 issued on April 17, 2018 (the “Initial Notes”) are not immediately available or if the procedure for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Bank of New York Mellon, as exchange agent (the “Exchange Agent”) prior to 5:00 p.m., New York City time, on the Expiration Date of the Exchange Offer.

Such form may be delivered or transmitted by facsimile transmission (if signatures are not required to be medallion guaranteed), mail or hand delivery to the Exchange Agent as set forth below. In addition, in order to utilize the guaranteed delivery procedure to tender the Initial Notes pursuant to the Exchange Offer, a completed, signed and dated Letter of Transmittal (or facsimile thereof) relating to the tender for exchange of Initial Notes (the “Letter of Transmittal”) must also be received by the Exchange Agent within three business days of the Expiration Date. Any Initial Notes tendered pursuant to the Exchange Offer may be withdrawn at any time before the Expiration Date. Where the Expiration Date has been extended, tenders pursuant to the Exchange Offer as of the previously scheduled Expiration Date may not be withdrawn after the date of the previously scheduled Expiration Date. Capitalized terms not defined herein are defined in the Prospectus or the Letter of Transmittal.

BY HAND, MAIL OR OVERNIGHT COURIER:
Bank of New York Mellon
Corporate Trust — Reorg

111 Sanders Creek Parkway

East Syracuse, NY  1305

For Information Call:
(315) 414-3034 BY FACSIMILE:
(732) 667-9408
(for eligible institutions only)
Attention: Tiffany Castor Confirm Receipt of Facsimile by
Telephone: 315) 414-3034

Delivery of this instrument to an address other than as set forth above, or transmission or instructions via facsimile other than as set forth above, will not constitute a valid delivery.

This form is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution (as defined in the Letter of Transmittal) under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal.

PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

Ladies and Gentlemen:

Upon the terms and conditions set forth in the Prospectus and the accompanying Letter of Transmittal, the undersigned hereby tenders to the Issuer the principal amount of Initial Notes set forth below pursuant to the guaranteed delivery procedure described in the “Exchange Offer — Terms of the Exchange Offer — Guaranteed Delivery Procedures” section of the Prospectus.

The undersigned understands that tenders of Initial Notes will be accepted only in principal amount equal to US$2,000 or integral multiples of US$1,000 in excess thereof. Additionally, the undersigned understands that the tenders of Initial Notes pursuant to the Exchange Offer may not be withdrawn after 5:00 p.m., New York City time, on the Expiration Date.

All authority herein conferred or agreed to be conferred by this Notice of Guaranteed Delivery shall survive the death or incapacity of the undersigned and every obligation of the undersigned under this Notice of Guaranteed Delivery shall be binding upon the heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy and other legal representatives of the undersigned.

PLEASE SIGN AND COMPLETE

Principal Amount of Initial Notes Tendered (must be in denominations of principal amount of US$2,000 and any integral multiple of US$1,000 in excess thereof):*	Name(s) of Registered Holder(s):
	Address including zip code:
If Initial Notes will be delivered by book-entry transfer at The Depository Trust Company, insert Account No.:	Telephone Number including Area Code:
	Signature(s) of Registered Owner(s) or Authorized Signatory:
Date:

This Notice of Guaranteed Delivery must be signed by the Holder(s) of Initial Notes exactly as its (their) name(s) appear on certificates for Initial Notes or a security position listing as the owner of Initial Notes, or by person(s) authorized to become registered Holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information.

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Please print name(s) and address(es):

Name(s):

Capacity:

Address(es):

Do not send Initial Notes with this form. Initial Notes should be sent to the Exchange Agent together with a properly completed and duly executed Letter of Transmittal.

GUARANTEE
(Not to be used for signature guarantee)

The undersigned, a member firm of a registered national securities exchange or of the Financial Industry Regulatory Authority, 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 Securities Exchange Act of 1934, as amended, hereby guarantees that the certificates representing the principal amount of Initial Notes tendered hereby in proper form for transfer, together with a properly completed and duly executed Letter of Transmittal, with any required signature guarantees and any other documents required by the Letter of Transmittal will be received by the Exchange Agent at the address set forth above or timely confirmation of the book-entry transfer of such Initial Notes into the Exchange Agent’s account at The Depository Trust Company pursuant to the procedures set forth in the Prospectus under the heading “The Exchange Offer —  Terms of the Exchange Offer — Guaranteed Delivery Procedures” will be received by the Exchange Agent no later than three business days after the Expiration Date.

Name of Firm

Address

Zip Code

Area Code and Tel. No.

Authorized Signature

Title

Name: (Please Type or Print)

Dated:

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INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY

1.Delivery of this Notice of Guaranteed Delivery. A properly completed and duly executed copy of this Notice of Guaranteed Delivery and any other documents required by this Notice of Guaranteed Delivery must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. The method of delivery of this Notice of Guaranteed Delivery and any other required documents to the Exchange Agent is at the election and risk of the Holder and the delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered or certified mail properly insured, with return receipt requested, is recommended. In all cases sufficient time should be allowed to assure timely delivery. For a description of the guaranteed delivery procedure, see Instruction 1 of the Letter of Transmittal.

2.Signatures of this Notice of Guaranteed Delivery. If this Notice of Guaranteed Delivery is signed by a participant of the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Initial Notes, the signature must correspond with the name shown on the security position listing as the owner of the Initial Notes.

If this Notice of Guaranteed Delivery is signed by a person other than the registered Holder(s) of any Initial Notes listed or a participant of the Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by appropriate bond powers, signed as the name of the participant shown on the Book-Entry Transfer Facility’s security position listing.

If this Notice of Guaranteed Delivery is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or other person acting in a fiduciary or representative capacity, such person should so indicate when signing.

3.Requests for assistance or additional copies. Questions and requests for assistance and requests for additional copies of the Prospectus may be directed to the Exchange Agent at the address specified on the first page hereof. Holders may also contact their broker, dealer, commercial bank, trust company, or other nominee for assistance concerning the Exchange Offer.

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EX-99.3

Exhibit 99.3

FAIRFAX FINANCIAL HOLDINGS LIMITED

OFFER TO EXCHANGE

US$600,000,000 of its 4.850% Senior Notes due 2028

To DTC Participants, including Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees:

As described in the enclosed Prospectus, dated                , 2018 (as it may be amended or supplemented from time to time, the “Prospectus”), and Letter of Transmittal (the “Letter of Transmittal”), Fairfax Financial Holdings Limited, a corporation incorporated and existing under the Canada Business Corporations Act (the “Company”), is offering to exchange (the “Exchange Offer”) up to US$600,000,000 aggregate principal amount of its outstanding 4.850% Senior Notes due 2028 issued on April 17, 2018 (the “Initial Notes”) for a like principal amount of its 4.850% Senior Notes due 2028 (the “Exchange Notes”), that have been registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), to be issued in minimum denominations of US$2,000 and integral multiples of US$1,000 in excess thereof, upon the terms and subject to the conditions of the enclosed Prospectus and Letter of Transmittal. The terms of the Exchange Notes are identical in all material respects (including, but not limited to, principal amount, interest rate and maturity) to the terms of the Initial Notes for which they may be exchanged pursuant to the Exchange Offer, except that the Exchange Notes (i) will bear a different CUSIP number from the Initial Notes, (ii) will be freely tradable by persons not affiliated with the Company, (iii) will not bear legends restricting their transfer and (iv) will not contain the registration rights and additional interest provisions of the Initial Notes. The Company will accept for exchange all Initial Notes validly tendered and not validly withdrawn according to the terms of the Prospectus and the Letter of Transmittal. Consummation of the Exchange Offer is subject to certain conditions described in the Prospectus.

WE URGE YOU TO PROMPTLY CONTACT YOUR CLIENTS FOR WHOM YOU HOLD INITIAL NOTES REGISTERED IN YOUR NAME OR IN THE NAME OF YOUR NOMINEE. PLEASE BRING THE EXCHANGE OFFER TO THEIR ATTENTION AS PROMPTLY AS POSSIBLE.

Enclosed are copies of the following documents:

1. the Prospectus;

2. the Letter of Transmittal for your use in connection with the tender of Initial Notes and for the information of your clients, including a Substitute Form W-9 and Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (providing information relating to U.S. federal income tax backup withholding);

3. a form of Notice of Guaranteed Delivery; and

4. a form of letter, including a letter of instructions to a registered holder from a beneficial owner, which you may use to correspond with your clients for whose accounts you hold Initial Notes that are registered in your name or the name of your nominee, with space provided for obtaining such clients’ instructions regarding the Exchange Offer.

Your prompt action is requested. Please note that the Exchange Offer will expire at 5:00 p.m., New York City time, on                         , 2019, or such later date to which the Company may extend the Exchange Offer (the “Expiration Date”).

To participate in the Exchange Offer, certificates for Initial Notes, together with a duly executed and properly completed Letter of Transmittal (or facsimile thereof), together with any required signature guarantees, and any other required documents, or a timely confirmation of a book-entry transfer of such Initial Notes into the account of the Bank of New York Mellon (the “Exchange Agent”), at the book-entry transfer facility, with any required signature guarantees, and any other required documents, must be received by the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date as indicated in the Prospectus and the Letter of Transmittal.

The Company will not pay any fees or commissions to any broker or dealer or to any other persons (other than the Exchange Agent) in connection with the solicitation of tenders of the Initial Notes pursuant to the Exchange Offer. However, the Company will pay or cause to be paid transfer taxes, if any, applicable to the tender of the Initial Notes to it or its order, except as otherwise provided in the Prospectus and Letter of Transmittal.

If holders of the Initial Notes wish to tender, but it is impracticable for them to forward their Initial Notes prior to 5:00 p.m., New York City time, on the Expiration Date or to comply with the book-entry transfer procedures on a timely basis, a tender may be effected by following the guaranteed delivery procedures described in “The Exchange Offer—Guaranteed Delivery Procedures” section of the Prospectus.

Any inquiries you may have with respect to the Exchange Offer should be addressed to the Exchange Agent at its address and telephone number set forth in the enclosed Prospectus and Letter of Transmittal. Additional copies of the enclosed materials may be obtained from the Exchange Agent.

Very truly yours,

Fairfax Financial Holdings Limited

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NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM IN CONNECTION WITH THE EXCHANGE OFFER, OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS EXPRESSLY CONTAINED THEREIN.

Enclosures

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