Moody’s Investors Service has changed the rating outlook for Fairfax Financial Holdings Ltd.’s Ba3 senior debt rating and TIG Capital Trust I’s (TIGCT) B2 preferred stock rating to “stable” from “negative”. At the same time, Moody’s affirmed each entity’s ratings.

Moody’s said the change in outlook reflects the improved liquidity position at the holding company and within Fairfax’s run-off operations. Fairfax’s cash position at the holding company has remained above Moody’s expectations for the balance of 2006 because its run-off operations have drained less cash from it than in prior years. Moreover, the company’s earlier decision to commute a large adverse development contract freed up funds in the run-off businesses and should prevent further cash drain at the holding company for at least the next two years. Finally, Fairfax recently announced the completion of a public secondary offering of its majority-owned subsidiary, Odyssey Re Holdings Corp., which will net the company an additional US$300 million in cash. As a result, Fairfax will have over US$700 million in cash at the holding company level, well in excess of the rating agency’s US$400 million expectation.

Moody’s also noted that the improved liquidity conditions at Fairfax help alleviate the concerns it highlighted in its earlier decision to maintain the negative outlook on the company. On July 31, 2006, Moody’s cited concerns about the emergence of material weaknesses in Fairfax’s control environment, the potential for further financial restatements, and the possibility of enhanced regulatory scrutiny and/or fines as the basis for maintaining a negative outlook on the company.

In Moody’s view, these concerns, though still present in the overall credit profile, no longer warrant a negative outlook. Most importantly, the additional cash at the holding company gives Fairfax additional cushion to absorb any negative consequences triggered by the aforementioned issues. In addition, the company has taken meaningful steps to remediate its material weaknesses and has provided evidence that suggests its recent financial restatements were largely due to flaws in a now-replaced accounting system used prior to 2001. Finally, although the company remains under investigation by the U.S. Securities and Exchange Commission, Moody’s is growing more comfortable that any adverse regulatory developments will be manageable within Fairfax’s current rating.

The decision to change the outlook on TIGCT to stable from negative isbased on improved operating performance at the TIG Insurance Company, as well as Fairfax’s improved liquidity position discussed above.

The rating agency said that Fairfax’s Ba3 rating is based on the followingexpectations: (1) holding company cash remains at or above US$400 million, (2) pre-tax coverage of interest, hybrid fixed payments, and preferred share dividends remains above 1x , (3) financial leverage continues to improve moderately with hybrid-adjusted debt to total capital (net of goodwill) staying below 45%, (4) only moderate adverse reserve development after reinsurance with run-off operations operating at or near break-even, and (5) any internal or external investigations into finite transactions or other accounting issues do not result in further material negative impact on Fairfax’s common equity.

Fairfax, based in Toronto, is a financial services holding company with subsidiaries engaged in property and liability insurance and reinsurance in Canada, the United States, and internationally. For 2006 year-to-date, Fairfax Financial reported total revenue of US$5.2 billion, net income of US$68.4 million, and shareholders’ equity of US$2.7 billion.