Moody’s Investors Service maintained the negative outlook on Fairfax Financial Holdings and affirmed the company’s Ba3 rating on senior unsecured debt. This follows Fairfax’s announced restatement of the company’s financials and the consequent reduction in its common equity base. Fairfax has also delayed the release of its second quarter 2006 financial statements.

Moody’s stated that it has maintained the Ba3 rating on Fairfax because its liquidity, consolidated financial leverage, and other key credit metrics, remain within the rating agency’s expectations for the company. Moody’s noted, however, that it remains concerned about the potential for further Fairfax restatements, the emergence of material weaknesses in Fairfax’s control environment, the possibility of enhanced regulatory scrutiny and /or fines, as well as the emergence of litigation risk at the company. Moody’s underlined that these concerns continue to warrant the negative outlook on Fairfax.

The rating agency said that the announced restatement may presage further events that could strain the capitalization and financial flexibility of the company. Such further events could include additional financial restatements, the emergence of material control weaknesses, and/or sizable regulatory penalties. If any of these events take place, Moody’s said, then Fairfax’s ratings could be downgraded.

Moody’s also noted that future rating actions would be influenced by the strength of the liquidity position at the Fairfax holding company, any future adverse reserve development at the Fairfax operating and/or run-off subsidiaries, and the underwriting profitability of Fairfax’s key subsidiaries — Odyssey Re Holdings Corp. (whose main operating subsidiary, Odyssey American Reinsurance Corp., is rated A3 for insurance financial strength), Crum & Forster Holdings Corp. (whose main operating subsidiaries, United States Fire Insurance Co. and North River Insurance Co., are rated Baa3 for insurance financial strength), and Northbridge Financial Corp. (not rated).

On March 21, Moody’s changed the rating outlook for Fairfax to negative from stable following the delay in filing by Odyssey Re Holdings Corp. of its 10-K and the consequent delay in the filing of Fairfax’s annual report. In the interim, Fairfax and Odyssey Re released the aforementioned reports, while Fairfax announced that it had received subpoenas from the SEC in connection to information disclosed on an investor call during 1Q06 results.

Fairfax’s Ba3 rating is based on the following expectations: (1) holding company cash remains at or above $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 debt/hybrids/preferreds to total capital (net of goodwill) staying below 45%, (4) only moderate adverse reserve development after reinsurance with run-off operations 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.