Fairfax Financial Holdings Ltd. said Thursday its second-quarter profit jumped to US$223.6 million from the US$5 million it reported a year ago, when the company booked a US$103.1 million pre-tax charge.

However, Fairfax said previously reported financial results should not be relied upon due to the discovery of accounting errors.

The insurance holding company said it had uncovered various noncash accounting errors during a recent review of the accounting implications of a decision to commute a US$1 billion insurance instrument reinsured with a Swiss subsidiary.

It said it had switched its consolidation accounting system in 2001, and recently determined that a journal entry relating to the Swiss insurance instrument was associated with other noncash accounting errors arising mainly in 2001 and earlier.

Fairfax said it will restate its financial statements for prior affected periods, and said previous statements should not be relied upon until the restatement is completed, expected by the end of August.

It estimated the impact of the restatement will be a decrease in shareholders’ equity in the range of US$175 million to US$190 million related to the discovered errors, and an additional US$50 million related to “previously unrecorded differences” existing on March 31, 2006.

“The restatement will not impact Fairfax’s cash flows or the fundamental strength of our business,” chief executive Prem Watsa said in a news release..

Separate from the restatement, Fairfax said the accounting impact of the decision to commute the Swiss insurance instrument would be a noncash pretax loss of about US$415 million under Canadian accounting rules or a loss of about US$16 million under U.S. rules.

Fairfax said revenue in the latest quarter was US$1.9 billion.

On Wednesday, Fairfax said it had filed a US$6 billion lawsuit against a number of defendants, including hedge fund SAC Capital Management and its billionaire founder, Steven Cohen. The complaint alleges defendants participated in a stock market manipulation scheme involving Fairfax shares.

In response to Fairfax’s announcements, ratings agency A.M. Best Co. has commented that all of the debt, financial strength and issuer credit ratings and outlooks of Fairfax and its majority and wholly-owned subsidiaries remain unchanged

A.M. Best’s decision to not make any rating changes to Fairfax also incorporates Odyssey Re Holdings Corp.’s announcement of its intention to restate its financials. This restatement relates principally to a more appropriate U.S. GAAP accounting treatment of convertible bond investments. GAAP equity remains unchanged and statutory accounting is unaffected. A.M. Best recognizes that the Fairfax and Odyssey announcements provide for a continuation of a complicated analytical profile. However, the issues have been analyzed separately and collectively and do not produce an operating destabilization concern that would lead to a ratings reconsideration at this time.

The foundation upon which A.M. Best rests its rating decision subsequent to the announcements by Fairfax is the general and overall operating stability and appropriate capital levels of all of Fairfax’s ongoing business segments and the ability of Odyssey Re Holding Corp., Crum & Forster Holdings Inc. and Northbridge Financial Corp. to timely file their individual financial statements. While Northbridge’s second quarter and six month results were lower than A.M. Best’s expectations due to the need to increase loss reserves at Commonwealth related to a particular book of business exposed to the 2005 hurricanes, the company is well capitalized and able to absorb the negative financial result. Aside from this Northbridge reserve aberration, the various Fairfax business segments are performing to expectations. The capital levels of Fairfax’s ongoing subsidiary operations are unaffected.