VOLuME 1 || ISSuE 4 || FALL 2012

Welcome to the Fall 2012 Edition of the Fairfax Newsle� er.In this issue, we feature interviews with the leaders of Fairfax Brasil and ICICI Lombard. � rough these two companies, Fairfax enjoys a prominent position in the dynamic emerging economies of Brazil and India.In June, Fairfax held its inaugural Leadership Workshop in Toronto. You will � nd a report on the weeklong program provided by several of the a� endees.We’ve included a case study of collaboration between Fairfax companies, describing the partnership between Northbridge and Crum & Forster to deliver cross border products to our customers. You will also learn more about inter-company collaboration � om a report on the General Counsel Working Group, which is looking at synergies within the Legal function across our companies.Fairfax’ recent investment in � omas Cook India is highlighted for you.And � nally, we report on the July visit of Prem Watsa and the Fairfax Board to the home o� ce of Crum & Forster. We hope you enjoy this edition of the Newsle� er, and invite your comments or suggestions to: newsle� er@fairfax.ca

In Th is Issue: Fairfax Rising Leaders . . . . . . . . . . . . 1Jacques Bergman Interview . . . . . . . 3Bhargav Dasgupta Interview . . . . . . 5Northbridge and Crum & Forster . . . .8General Counsel Collaboration . . . 8Th omas Cook . . . . . . . . . . . . . . . . . . . . . 10New Advent COO . . . . . . . . . . . . . . 11Crum & Forster Charitable Giving . . 12

FairFax leadershiP worKshoP

In late June, seventeen rising leaders from eleven Fairfax companies gathered in Toronto for the fi rst Fairfax Leadership Workshop. As Fairfax continues growing, it is increasingly apparent to the current leadership of the company that while it will always operate as a decentralized holding company, cooperation between companies yields tangible benefi ts for all of Fairfax. Th e workshop was designed to foster this idea among a selected group of rising leaders across the organization.

Andy Barnard, President and COO of the Fairfax Insurance Group, and Paul Rivett , Fairfax Vice President, Operations, conceived of and organized the workshop.

Commenting on the workshop goal, Andy Barnard said, “Our objectives in launching this workshop are many. Off ering quality management training, fostering greater networking across companies, and recognizing our top performers are among the primary goals. Fairfax seeks to build the roster of high performing individuals who may, under the right circumstances, move amongst companies. As the years go by, we think the benefi ts of holding these Leadership Workshops will multiply.”

Andy noted, “Th e Leadership Workshop brings together talented executives across many disciplines. Working together, each person here will broaden his or her understanding of the strengths found in our companies. We want them to take this knowledge and use it to benefi t their own company, department, and discipline, imparting their experience to team members.”

Analyzing a problem during the Workshop (L to R): Lambert Morvan, OdysseyRe; Elizabeth Gray, Northbridge Financial; Rajesh Rai, ICICI Lombard; Gobi Athappan, Falcon Insurance Hong Kong; Robert Sampson, Th e RiverStone Group.

Page 2 Th e Fairfax Newslett er

Prem Watsa, Fairfax Chairman and CEO, opened the workshop sharing with att endees the Fairfax Guiding Principles and his wish that the group use the week to support each participant’s learning and development in the spirit of Fairfax’s culture and values. Prem emphasized that the success of the company, to date and in the future, rests on its strong culture of teamwork-driven results, focus, and fair play.

Th e workshop featured hands-on professional development followed by guest speaker presentations on topics including management theory and economic forecasting. Group discussions followed with workshop participants examining all the topics in these talks.

Dick Ruhe of the Ken Blanchard Companies led the professional development content. Th e Blanchard mission is to “unleash the power and potential of people and organizations for greater good.” Att endees learned about techniques for building team eff ectiveness and developed bett er personal leadership traits through

behavioral modeling. Working collaboratively, the group went through several exercises building their own “Leadership Point of View.” understanding your communication and management style gives you the best chance to become an eff ective leader.

Guest speakers included Mary Hardy, PhD, CIBC Chair in Financial Risk Management, Associate Chair, Professor of Statistics and Actuarial Science, university of Waterloo and Stephen D’Arcy, Professor Emeritus of Finance, university of Illinois. Dr. Hardy and Professor D’Arcy focused their talks on the subject of defl ation. Dr. Hardy’s “Preparing for Defl ation” and Professor D’Arcy’s “Defl ation and High Infl ation Risk of the Insurance Industry” both highlighted the current global challenges posed by excessive debt.

Peter Clarke, Vice President and Chief Risk Offi cer of Fairfax and Jean Cloutier, Vice President, International Operations led a probing group discussion and analysis of how Fairfax

Standing (L to R): Chandran Ratnaswami, Nigel Fitzgerald, Rob Roman, Rajesh Rai, Cory Struck, Gobi Athappan, Heron Parron, Peggy Killeen, Jacek Kugacz, Isam Abdelkhaliq, Robert Sampson, Davidson Patt iz, Ronald Schokking, Jean Cloutier, Ted Camp, Dave Bonham, Vinodh Loganadhan Seated (L to R): Dina Daskalakis, Elizabeth Gray, John Slater, Dick Rume, Paul Rivett , Prem Watsa, Andy Barnard, Lambert Morvan, Joe Guardo, Matt Kunish

Workshop att endees (L to R): Matt Kunish, Crum & Forster; Peggy Killeen, OdysseyRe; Corey Struck, Northbridge Financial; Heron Parron, Fairfax Brasil; Joe Guardo, OdysseyRe.

has prepared for this potential threat to the global economy.

Mr. Isadore Sharp, founder of Four Seasons Hotels, was the second guest speaker. Over the last fi ft y years, he has built what many believe is the fi nest hotel and hospitality company in the world.

Mr. Sharp shared with the group the values to which he att ributes the success of Four Seasons. He described a culture that rests upon deep respect for all persons working for the company, the embedded

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values of honesty and fairness, and the unrelenting focus on customer service. In particular, he stressed the importance of an empowerment culture in which all employees are encouraged to take the initiative to improve the Four Seasons experience. As Fairfax companies develop their own businesses over the coming years, the successful experience and lessons learned from Mr. Sharp and Four Seasons can be instructive.

Th e fi nal speaker of the workshop was Dr. Gary Shilling, President of A. Gary Shilling and Company, Inc. an economic consulting fi rm. Dr. Shilling presented a sobering forecast titled “Th e Age of Deleveraging.”

Based on his analysis of historical trends, Dr. Shilling is predicting “Slow Growth” for the next 5-7 years as the world copes with excessive debt levels. Th e group discussed how this forecast might aff ect business at Fairfax companies.

Roger Lace and Brian Bradstreet of the Hamblin Watsa Investment Counsel team followed Mr. Shilling presenting a review of the Hamblin Watsa Value Investing philosophy and the strategy presently employed within the investment portfolio. Roger and Brian also shared the Hamblin Watsa approach on how best to position the investment portfolio should defl ation emerge in the global economy.

By all accounts, this inaugural workshop was an unqualifi ed success. Participants were treated to a stimulating week of management training, interesting outside speakers, and a vibrant Toronto nightlife that allowed for relationship building. We look forward to future Leadership Workshops and expect they will, like the fi rst one, become a signature experience for those selected to att end.

Contributors to this article include workshop att endees and Northbridge Financial executives Elizabeth Gray, Cory Struck, and Robert Roman

Jacques Bergman, CEO, Fairfax Brasil

aN iNterview with JaCQues bergmaN,Ceo, FairFax brasil

Jacques, would you please share your background with our readers?My passion, as a student, was the subject of engineering. At university, I focused on chemical engineering. Typically, such training prepares you for a career with a large chemical processing or industrial concern. However, I wanted to become a university professor!

Aft er earning advanced degrees in the fi eld at schools in England and France, I worked as a professor in the School of Chemistry at Rio de Janeiro Federal university for two years but left the university aft er accepting an off er to join the Brazilian operations of a French consulting company.

Th e consulting company put my engineering background to practical use, analyzing risks in industrial operations. Th is experience in practical risk analysis, led me to another fi eld where evaluating risk is a central tenet, the insurance business.

In 1990, I joined a French insurance company and a few years later, moved to Itau Seguros, at the time one of the largest Brazilian insurance companies. I stayed at Itau for fi ft een years in a number of increasingly senior management roles.

What led you to leave Itau?In February 2009, Itau, then the largest insurance company in Brazil, merged with unibanco, the largest bank in Brazil. Th e culture of the company changed, an almost inevitable consequence of such a transaction, and I decided to pursue other opportunities. Several inquiries to join other companies emerged, including four invitations to start new companies. One of those proposals came from Fairfax.

I contacted some of my colleagues about this idea of starting a new company. To my delight and great fortune, several of them decided to collaborate in building a business plan. Aft er meeting with all those who invited us to start a new operation, we chose the proposal tendered by Fairfax.

Why Fairfax? What made their proposal att ractive?Th e decision was quite straightforward and boiled down to the Fairfax business model. All the other suitors used a matrix managerial structure. A matrix management model works on the premise that an operational team, a business unit, reports to two bosses. You have one person overseeing a division of which a business unit is a part and another supervisor overseeing the work projects of that business unit.

I had used a matrix managerial structure with varying degrees of success. For me, it was a challenge operating eff ectively in this type of management arrangement. Decision-making by several chains of command can lead to ineffi ciency and, sometimes, confusion.

Th e Fairfax model is simpler, and from my experience, much bett er. under the decentralized approach, signifi cant autonomy is granted to the person selected to lead the local business. Th ere is minimal red tape from the Fairfax home offi ce, which is not oft en

Page 4 The Fairfax Newsletter

the case with many other large global companies.

A straightforward managerial structure offered attractive advantages. Three key benefits were apparent. First, day-to-day decisions would be made locally with no need to seek approval from Fairfax senior management on how we conducted our daily business operations. Independence would allow for quick assessment and evaluation of opportunities, precisely the responsiveness required to compete as a start-up in a competitive market.

Second, as one of the top twenty insurance companies in the world, Fairfax had the financial stability and strength we felt was important, making a multiyear commitment to our plan to build from a startup into a larger operation.

Third, and most important, Prem Watsa gave my team and me confidence to move forward with Fairfax. His leadership, vision, and past success amply demonstrated the strength of the Fairfax Guiding Principles as a template for building a successful business. With Prem’s commitment to invest and build with the goal of long-term success, all the elements needed in launching a new endeavor were in place.

How large is the market segment you are targeting? The size of the entire insurance market in Brazil is roughly $30 billion. The P&C market accounts for $5 billion. We estimate that the large company segment in the Brazilian P&C arena to be about $3 billion in size. This $3 billion market segment is our immediate focus. In time, we will address the other $2 billion. The company wrote $100 million in gross premiums last year, leaving ample room to grow before exhausting this target market.

Does your underwriting effort favor any industry segment?We write property and casualty insurance across almost all industries. Supporting this underwriting are engineers in many specialties including naval, petroleum, and mechanical engineering. Additionally, our staff includes attorneys supporting general liability products. Our business and industry expertise spans a broad spectrum of Brazilian business endeavors.

How is business?Fairfax Brasil opened for business in March of 2010. With almost two and a half years of operating history, the business is meeting plan targets. Our team started with a handful of people and now employs 72 colleagues. Gross premium volumes exceeded $100 million last year and the goal of reaching a combined ratio of close to 100 at year-end is in sight. We are pleased with our progress.

What is the state of the property and casualty insurance marketplace in Brazil today?Brazil has been in the midst of a strong expansion over the past several years, growing rapidly in many economic sectors. Infrastructure investing covering areas such as road building projects, utility plants and transmission grids, manufacturing and industrial expansion, is booming. The P&C insurance market is keeping pace, growing roughly 38% between 2009 and 2012, impressive growth by any measure!

At the same time, the Brazilian reinsurance market is moving from a state-controlled monopoly to opening for private competitors, a change that began in 2008. The number of entrants into this market exploded from a single government-controlled company to more than eighty companies vying for business.

All of these insurance and reinsurance companies offering capacity have overwhelmed the market despite fast growing demand for cover. Rates have been falling, down between 60 and 75% from the unsustainably high levels during the days of state-controlled rates! The result is a difficult market environment, as challenging a market as I have seen in my career.

How is Fairfax Brasil coping with this competitive environment? Despite this crowded market, our first year premiums were $50 million and we doubled that to $100 million by the end of our second year. Our strategy is simple. We are selectively building our roster of clients, aiming to build relationships with the largest, most reputable, and financially stable companies in Brazil. Our company could grow much faster but, instead, our priority is profitability. Only the best risks we fully understand are worth underwriting and then only if we get our price. To date, our loss ratios are significantly lower than the industry experience, suggesting that our strategy is working.

Besides focusing on profitability, are there other distinctive characteristics of the Fairfax Brasil approach that differ from the competition?We devote a lot of time and research determining the best underwriting risks and clients, across a wide array of industries. The company receives more than 1000 submissions per month seeking quotes for insurance and we decline to bid on over half of that volume because it does not meet our various hurdles designed to identify attractive business propositions and clients.

We want to do business with a handful of select companies in an industry instead of many companies in a handful of business segments. We seek out customers that operate their business

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as we run Fairfax Brasil. Prospective clients who employ disciplined risk management and a measured, consultative approach to business are likely to appreciate our operating philosophy. Fairfax Brasil’s long-term profi tability rests on a strategy of pursuing select, high quality clients for our underwriting, not quantity.

How does the Brazilian marketplace perceive the Canadian ownership of Fairfax Brasil? Prospective and current clients like our fi nancial stability. Fairfax ownership is a clear advantage over other start-ups as we pursue large corporations, who we believe are the most att ractive risks. Th ese companies will open a dialogue with Fairfax Brasil because of our backing. Th en our team wins their business by out-working the competition, off ering customized strategies and our best terms.

Reinsurers have also taken notice of the ownership of Fairfax Brasil. We began 2010 with more than 30 reinsurers off ering us capacity that we needed to compete in the Brazilian market. Today, we count more than fi ft y. We know that the fi nancial stability of our parent has been a positive infl uence in this regard.

Any fi nal thoughts?Brazil is a very competitive insurance market. With the support of our parent Fairfax, the company has begun building a noticeable and lasting presence in the Brazilian property and casualty markets by following a disciplined strategy of working with the strongest companies. We strive to deliver the best service, rates, and policies to our clientele. All of us at Fairfax Brasil look forward to our development and growth over the next few years.

Th anks Jacques.

Bhargav Dasgupta joined ICICI Group, one of the largest fi nancial services companies in India, in 1992 working in the Projects and Corporate Finance Division of ICICI Bank. Over a period of roughly fourteen years, he moved through a number of diverse roles of increasing responsibility culminating in establishing the International Banking Group.

In 2006, ICICI Group appointed him the Executive Director of ICICI Prudential Life Insurance, the life-insurance business of the Group, sett ing the stage for his next role in insurance. In 2009, senior ICICI Group management appointed Bhargav as CEO of ICICI Lombard General Insurance, the general insurance joint venture between ICICI Bank and Fairfax.

Bhargav shares with us some of the recent history of the Indian insurance marketplace and key factors driving the success and growth of the partnership.

Please share with our readers the background of the insurance industry in India. Prior to 2000, the Indian insurance industry was highly regulated and not open to private competition. Only four insurance companies, all of which

were controlled by the government, operated in the country. Th e Indian Insurance Regulator, instead of the market forces of supply and demand, set rates for all coverages.

By the late 1990s, Indian economic growth was overwhelming the capacity of the regulators to govern and manage the government-dominated insurance industry. New industries and companies were emerging at an unprecedented pace. Th e old systems, limited coverages, and fi xed rates could not accommodate all the innovation and growth in the private sector. Delays in addressing pressing needs and concerns of business with regard to coverages and claims threatened Indian global competitiveness. Without change, the insurance industry would become a bott leneck stalling economic expansion. Clearly, it was time for a fresh approach to regulating the general insurance industry.

How did the regulators respond?In 2000, the government began opening up the insurance markets in a two-step deregulatory process. Th e fi rst step, liberalization, opened the fi nancial markets and allowed competition from private companies. Indian companies as well as foreign insurance operations partnering with

aN iNterview with bhargav dasguPta, Ceo, iCiCi lombard

Bhargav Dasgupta, CEO, ICICI Lombard

Page 6 The Fairfax Newsletter

Indian companies could now offer new products and approaches to insurance coverage the market needed.

The Indian Insurance Regulator took the second step in 2007, eliminating pricing tariffs and opening the domestic insurance marketplace to full price competition. Competitors were now free to charge for risk at levels they deemed appropriate.

Against this backdrop of industry reform, ICICI, the second largest bank in India, decided to build a general insurance company. They could have collaborated with any number of prestigious insurance companies. In 2000, why did the bank choose a then relatively unknown and small Canadian insurer, Fairfax Financial?ICICI had a strong brand and a huge distribution base for a new insurance business; namely their current banking clients. What ICICI lacked was the product knowledge and expertise in property and casualty coverages.

The bank had two options: Build out their own expertise, which would take a fair amount of time, or seek out a partner with expert knowledge and success in the property and casualty industry. In viewing the newly emerging market for P&C products, management was inclined to look at the faster-to-market alternative, a partnership.

ICICI Bank knew Fairfax because Prem Watsa, Chairman of Fairfax, and the team at Hamblin Watsa had made significant investments in the stock of ICICI Bank. Consequently, K.V. Kamath, Managing Director and CEO of ICICI Bank, and Prem Watsa met on several occasions. Over time, it was apparent to Mr. Kamath and Mr. Watsa that they shared similar values and views about life and business.

ICICI grew to know more about Fairfax and saw a company with deep knowledge about the property and casualty business, the product know-how the bank needed to compete. Comfortable with the cultural fit, the CEOs of ICICI Bank and Fairfax launched a partnership combining ICICI Group’s brand name and distribution strength and Fairfax’s expert knowledge of insurance products and industry expertise. The joint venture was called ICICI Lombard, after the Northbridge subsidiary, Lombard, that helped ICICI establish the new systems ICICI needed to run a property and casualty business.

How has ICICI Lombard fared? The industry grew at a compound rate of 15% per year from 2000 to 2005. By 2007, new industry entrants captured 34% of the market with ICICI Lombard securing top position among the new private (non-government) insurance competitors, a notable achievement as prices in important markets such as fire and auto insurance remained regulated from 2000 to 2007. The key to ICICI Lombard’s success was an unwavering devotion to superior customer service and innovative products.

The partnership grew its market share nicely in the early years following liberalization. How did it respond to the second step in the process, deregulating pricing?In 2007, the Indian Insurance Regulator eliminated pricing tariffs, opening the domestic insurance marketplace to full competition. Companies could now price risk at whatever level they deemed appropriate. Without the crutch of regulated prices, many competitors raced to build market share by discounting prices, severely pressuring the profitability of some insurers. For instance, the total sum insured for fire went up nine times from 2009 to 2012,

while the fire gross direct premium increased by only 1.6 times during the same period!

We responded to these market developments by reexamining our operating models. We moved away from broadening distribution to focus on operating our business more efficiently, strengthening five core-operating areas. Those areas (and select initiatives) are:

Underwriting and Risk Management – We devoted substantial resources developing superior risk-based pricing models. While the industry remained focused on conventional lines, we built less commoditized, knowledge-based product lines such as Liability, Aviation, Credit, and Weather.

Customer Focus – Our company has developed initiatives designed to measure various aspects of customer service experience across a variety of areas allowing us to more closely understand and improve how we deliver our service and products.

Claims Management - ICICI Lombard pioneered efforts to control losses especially from theft. Investments to upgrade our technology platform resulted in more efficiency processing claims and improved fraud alert. We were one of the first companies to establish an in-house medical claims processing unit.

Channel Management – Enhancing how we interact with intermediaries is a big priority. We launched our “iPartner” portal streamlining the service experience for our

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agents and brokers and their end customers.

Cost Management – We continue developing more efficient operating systems, reducing our transaction unit costs.

Have these initiatives been successful? In a word, yes. In 2012, our expense to GWP ratio stood at 22% compared with 28% for the balance of the industry. With a more efficient cost structure in place, we devote more resources to developing new, less crowded market segments. Our focus on underwriting and risk management has resulted in our loss ratios improving by 6% between 2009 and 2012 for all non-tariffed products and in spite of competition in these segments driving prices sharply downward.

You have adapted nicely to these sweeping and fundamental changes in the Indian insurance industry. What has been the impact on your business? Overall, business has not dramatically changed, though there have been product-mix changes in each business group. We see widespread opportunities for profitable growth across all three of our business groups: Wholesale (accounting for 34% of our volumes), Retail (50%), and Financial Inclusion (16%) (Financial Inclusion offers an enormous opportunity in rural and semi-urban areas of the country where customers farming for a living have little or no insurance).

Wholesale – The rapid growth in infrastructure development and a burgeoning number of new entrepreneurial enterprises needing cover provides excellent prospects in the general insurance segment. Property and casualty,

employee benefit and marine are important segments for us. We are moving away from simply selling products and toward using our industry experience to consult with and devise solutions for our clients.

Retail – Indian middle-class prosperity means auto insurance is growing rapidly as is the need for adequate health care cover. Government health care programs cannot cover this growing need. Private insurance will need to fill this gap. We are working to meet this opportunity developing inexpensive solutions that we can distribute effectively and efficiently.

Financial Inclusion – India is a country of stark economic contrasts. We provide insurance solutions to rural customers. Weather, cattle, health, and personal accident are key products. Many of these customers have little discretionary capital to devote to these products. Working closely with the government, we have designed innovative and affordable products in two important lines, health care and crop insurance. For those who might not survive the setback of a failed crop or a major illness, these reasonably priced products are especially welcome and needed. We are mindful of the social responsibility we hold for those less fortunate in our country. Our commitment to this segment is considerable and growing and a source of great pride at ICICI Lombard.

By any measure, ICICI Lombard has grown rapidly. Would you share some concluding thoughts on the

ICICI Lombard formula for success? What are the greatest strengths of the company?From our start in 2001, we have approached the business believing that we must humbly learn from our mistakes, think creatively about the business, and remain true to the notion that satisfied, happy clients are the key to our prosperity. To that end, we constantly challenge the status quo and act decisively to enact solutions and policies that benefit our customers.

India is continuing its transformation into one of the economic powerhouses of the world. As more and more of the population take part in this developing success, our business opportunities also grow. The open and competitive nature of the market challenges us to “innovate creatively” devising new products and offering more efficient and effective customer service, while accepting only those risks for which we are fairly paid.

Our greatest strength is our team of amazing and talented employees, without whom none of this success would be possible. I believe our team in the best in the industry. Their dedication allows us to deliver on our promise to the clients of ICICI Lombard: to offer creative solutions for their insurance needs.

We have a wonderful partnership with Fairfax. Sharing their industry experience with our team provides invaluable insight, helping create a strong, fast growing company. Our partnership builds on a common philosophy – we operate honestly and with discipline, focused on building client solutions. We look to the future with great excitement as our partnership flourishes.

Thanks Bhargav.

Page 8 The Fairfax Newsletter

Northbridge PartNers with Crum & Forster

In 2011, Northbridge restructured its businesses. Management concluded that a different structure would be more efficient, flexible and competitive, better serving its clients’ evolving needs and the marketplace.

One element of the plan and process involved evaluating all company operations including the product lines offered by its companies. Was the lineup adequate and did it meet customer needs?

A survey of company clients showed that almost all brokers working with the Northbridge companies had clients with insurable operations in the united States. And while Northbridge could insure its clients’ Canadian operations, it could not directly underwrite their uS interests.

Without a uS insurance underwriting capability, brokers steered business to firms offering a more comprehensive solution for their cross-border insurable needs instead of dealing with a cumbersome multi-insurer, multi-country underwriting process.

Northbridge listened to its brokers and began building a solution. Collaborating with Crum &Forster (C&F), a development team from Northbridge met with their counterparts at C&F and assessed the feasibility for creating a cross-border underwriting capability. The teams quickly agreed that a mutual fronting arrangement would provide access to standard property and casualty lines, other than workers’ compensation,

for customers with operations in the uS and Canada. Crum & Forster would provide coverage for the uS operations of Northbridge clientele through separate C&F policies and Northbridge would underwrite coverage for Canadian operations of C&F customers.

With a cross-border product, the companies offer convenient and direct “one-stop shopping,” a broker priority. The cross-border capability levels the competitive playing field, filling a gap in the insurance product lineup for each insurer, and opening the door into a client group neither company easily addressed with existing lines.

It is early in the product rollout, but cross-border insurance could become a differentiating product for each company in this competitive market segment. Both organizations have deeply experienced underwriting teams and experts in all insurance categories and nationwide geographic footprints. The companies will accommodate most property and casualty coverage requests, designing custom-tailored service and solutions.

This project and partnership is yielding other, unanticipated potential revenue- enhancing benefits. During their meetings, the development teams also compared the product lines of the companies. In some cases, they found better “best practices” in products across the border.

For example, pet insurance, a rapidly growing line at C&F’s Fairmont subsidiary, also is an important line for Northbridge, the second-largest pet insurer in Canada. The managers responsible for these lines met and compared notes on their approach resulting in Northbridge adopting

strategic elements employed by Fairmont, yielding a better product for Northbridge. Comparing practices in other areas, notably travel, marine and environment, the companies exchanged ideas, improving their respective product lines.

Northbridge and Crum & Forster have built a partnership addressing a persistent client need, benefiting both companies. This partnership has worked brilliantly, using the collective expertise and experience in each company. As the companies worked together, they discovered other cooperative building opportunities, benefiting both companies.

FairFax ComPaNies’ geNeral CouNsels to Choose PreFerred law Firm veNdors

Within the Executive Leadership Council (ELC) of Fairfax, there are a number of working groups meeting and analyzing their respective operations within the Fairfax companies. Each working group is exploring strategies and practices within their companies with an eye towards increasing communication and building more efficient and thrifty best practices across the decentralized Fairfax group. To that end, the General Counsel Working Group has been analyzing Fairfax companies’ use of outside law firms. The Legal group members include the general counsel (GC) of each of the Fairfax Companies in North America. Members are Dina Daskalakis - Hudson, Bill Dunlop, Northbridge,

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Rich Fabian, RiverStone, Jim Kraus, Crum & Forster, Peter Lovell - OdysseyRe, and Mike Roskiewicz - First Mercury. Paula Sawyers of Fairfax’s legal department is also working closely with the group.

During the normal course of business there are numerous instances where the legal departments of Fairfax companies hire outside law firms. As the General Counsel of Riverstone, Rich Fabian knew how often Riverstone hired outside counsel in the normal course of business. And while necessary, he wondered if there might be some way to lessen the expense of outside counsel.

While he did not know how his counterparts at other Fairfax companies dealt with this issue, it seemed to him that some savings might be available if the Fairfax companies could all look to a handful of firms for some of their legal workload. Rich suggested that the Legal Group look into this idea.

The General Counsel Working Group moved forward launching a collaborative process to identify a small group of firms to work with the Fairfax companies for certain types of projects. Each GC drew up a list of potential firms for consideration. The list was narrowed down to twenty-two firms representing a range of specialties. Of the twenty-two firms, fifteen responded to a detailed Request for Proposal (RFP). Responding law firms cited their experience, competency, success, and stability. Those returning the RFP clearly understood that this would be an opportunity to meet seven potential clients, the insurance companies of Fairfax, simultaneously.

Reviewing the RFPs, the GCs narrowed the list to seven firms to interview. Each of the seven firms made a presentation to the General Counsel Working Group in mid-November in the offices of Hudson Insurance in New York City. Paula Sawyers also attended and offered her thoughtful insights. Hank Edmiston, Fairfax Vice President, Regulatory Affairs, is also involved in the process and participated in the meetings in New York. Hank is an expert in regulatory matters and is fully conversant with law firm assessment and selection.

The law firms cover a range of practices and specialties, national and international in scope addressing the diverse insurance and reinsurance operations needs within Fairfax. Following the November meetings, the group will select some of the firms to use on a trial basis to ensure that they deliver the services contemplated on a competitive basis. ultimately, the goal is to establish relationships with the firms that will service the individual needs of each Fairfax company while also being available to provide those services to the broader Fairfax group on a cost efficient basis.

What is certain is that these seven group members will come away from this exercise with firms that each member of the review committee will know thoroughly. When the moment arrives that a Fairfax company counsel needs outside legal assistance for company matters, she or he will have a lineup of vetted firms to which they may turn without having to engage in lengthy due diligence. This process will not in any way dilute Hank Edmiston’s invaluable service in referring legal counsel to the Fairfax companies and working with those

firms to ensure successful regulatory resolutions. The process is meant to supplement the existing relationships and give the GCs a chance to pool resources. Each of the companies will continue to be free to retain counsel of its choosing notwithstanding the results of this process.

With this exercise, the Fairfax group of companies in North America is broadening its legal resources by expanding its platform of ready-to-go solutions from preferred providers, offered at discounted prices.

This process has another strong benefit. Through these meetings, the GCs have established another network of resources, their own offices and experience. As their personal relationships develop, the legal departments of each company may routinely look to each other for answers to questions, a change from the typical practice of asking outside counsel first. The legal departments of each company now view other companies’ legal departments as an additional resource for the course of business.

Collaboration is a trend within the decentralized companies of Fairfax. Where appropriate, working with colleagues at other companies within Fairfax can lead to better efficiencies and more responsive and creative solutions to the challenges facing each company in building a profitable underwriting franchise.

We will continue highlighting examples of this kind of cooperation and collaboration in future issues of this newsletter.

Thanks to Jim Kraus, Senior Vice President and General Counsel, Crum & Forster for his contributions to this article.

Page 10 Th e Fairfax Newslett er

thomas CooK iNdia

Fairfax has acquired a majority stake in Th omas Cook India, through its wholly-owned subsidiary, Fairbridge Capital. We would like to share some details of this transaction with you, and provide you with a brief introduction to Fairbridge, a recent addition to the Fairfax family of companies.

Background on FairbridgeFairbridge Capital is a recently established investment operation focused on discovering, anlayzing, and executing acquisition and investment opportunities in the Indian subcontinent for the Fairfax family of companies. Th e Fairbridge team in Mumbai, India is led by Harsha Raghavan. Th e Fairbridge team collaborates closely with the Hamblin Watsa investment team, notably Chandran Ratnaswami, Paul Rivett , and Paula Sawyers in Toronto, and Chitra Dhondhee in Mauritius.

Background on Th omas Cook IndiaTh omas Cook was founded 160 years ago in the united Kingdom and it incorporated its Indian subsidiary 130 years ago. Over the years, Th omas Cook India has become an iconic brand with a strong reputation for reliability and trust in both its business lines, namely travel and tour packages and foreign exchange. Th omas Cook India, publicly traded on the Mumbai Stock Exchange since 1982, operates 550 retail outlets across 70 cities in India, as well as retail branches in Sri Lanka and Mauritius. Th e company also enjoys a specifi c regulatory advantage: it is the only non-bank fi nancial company allowed by the Reserve Bank of India to exchange foreign currency - not surprising considering that the company is older than the Reserve Bank of India itself! On a daily basis, Th omas Cook India air freights $10 million in foreign currency to destinations around the world to enable conversion into Indian rupees.

Th omas Cook India corporate headquarters

Over the years, the company’s revenues have grown at a steady pace, and it has always been profi table. In recent years, there has been a phase of increased growth fuelled by an affl uent Indian populace thirsting to travel the world. Hence, Th omas Cook India has benefi ted from providing large group package tours as well as foreign exchange for Indians visiting Europe, Asia and North America. Several cultural idiosyncrasies are worth noting: Indians love to travel in large groups, comprising their extended families, friends and even neighbors! And while they enjoy seeing the world, most Indians prefer “home food” instead of experimenting with foreign cuisines. Various dietary requirements arising from religious and cultural customs reinforce the Indian penchant for native cuisine, so Th omas Cook India oft en sends Indian chefs and Indian language-speaking tour guides on package tours to ensure that the global travel experience is comfortably Indian.

As examples of the breadth of travel services provided, in May 2012 Th omas Cook India hosted a celebratory off site for 1,200 high-performing dealers and distributors of Asian Paints, in Moscow, Russia. Most of these guests were dealers from rural Indian towns and many were outside India for the fi rst time ever. A month earlier, in April 2012, Th omas Cook India hosted the 500 most senior global partners of Bain & Company, a global consulting fi rm at a luxury off site in Delhi and arranged visits for them to a number of historic sites around the country.

Complexity of the transactionSeveral legal, regulatory and commercial facets created substantial complexity in completing a deal. On the regulatory side, the Reserve Bank of India had to approve the

VOLuME 1 || ISSuE 4 || FALL 2012 Page 11

adveNt aPPoiNts

New ChieF

oPeratiNg oFFiCer

We are pleased to announce that Nigel Fitzgerald has joined Advent as Chief Operating Offi cer (COO).

Nigel had been responsible for the Marine & Energy division at Fairfax’s Crum & Forster subsidiary. He has over 15 years of insurance industry experience and a proven track record of managing profi table underwriting insurance businesses. Nigel’s underwriting expertise will strengthen the senior management team at Advent and advance its focus on disciplined underwriting while also developing and implementing new business plans and strategies.

Nigel’s appointment demonstrates Fairfax’s continued long term commitment to the important Lloyd’s platform role within the Fairfax group.

Nigel Fitzgerald, newly appointed COO, Advent Group Ltd.

transaction. In addition, an important commercial background element was that Th omas Cook in the uK was heavily burdened with debt and declining business prospects, with a stock price that had lost 95% of its value in the prior 12 months. Most of the senior management and members of the Board had been replaced, and the new Independent Directors faced a daunting task to sell assets, including Th omas Cook India, in order to increase liquidity.

Madhavan Menon, CEO, Th omas Cook India

Th e secret sauce required to pull off the dealTh e transaction arose from a lunch meeting in February 2012 between Madhavan Menon, the CEO of Th omas Cook India and Fairfax representatives. Th omas Cook uK had recently announced plans to sell its 77% ownership stake in Th omas Cook India to raise capital. Madhavan, an ex-banker who has been CEO for the past 7 years, thought a sale could be destabilizing. He worried that he could lose team members in a restructuring, disrupting what had been a smooth-running operation. Press speculation named private equity parties such as KKR,

Blackstone, Carlyle, and Actis as being keenly interested in acquiring the company. Madhavan was particularly nervous that some of the short-term oriented private equity investors he had met would aim to increase short-term profi ts, then sell the company again within 3 or 4 years. In short, given his concerns, Madhavan was in search of a strong, long-term home for his business. Fairfax, with its long-term focus and trust in company management demonstrated over many years, was a perfect fi t.

Th e road forward with FairfaxTh e management team at Th omas Cook India has worked together for the bett er part of two decades. Th e culture is strong and they are now freed from the constraints of working for a parent company currently undergoing some fi nancial distress. In the press release announcing the deal, Prem Watsa, CEO of Fairfax, commented, “We are pleased to announce this acquisition and to own such a well-known and strong Indian business. We look forward to a seamless ownership transition under the continued leadership of Madhavan Menon, Th omas Cook India’s Chief Executive Offi cer, and his excellent team. Th is is the inaugural acquisition in India by Harsha Raghavan and his colleagues at Fairbridge Capital and we are excited by the exceptional opportunities we expect we will see in India in the future.”

Madhavan commented to the press, “Fairfax shares a lot of our values. Th ey have looked at this deal as a strategic, long-term investment.” We expect that under a stable long-term owner and with continuity of management, Th omas Cook India will be able to benefi t from the double-digit growth in Indian tourists traveling the world.

Page 12 The Fairfax Newsletter

Crum & Forster helPiNg those iN Need - FoCusiNg oN CommuNities

under the leadership of Doug Libby, Crum & Forster has been reshaping the strategic direction of the company and its mission for the last several years. Central to that evolution has been the direct involvement of employees and executives within C&F. By empowering people within the company to become involved in the shaping of roles and responsibilities within the organization, Crum & Forster is listening to and meeting the needs of its customers.

The same hands-on philosophy applies to the philanthropic efforts of all of the C&F companies. The people working at the C&F companies drive the charitable giving missions. Employees choose the charities and events to which they will give not only money, but also their time and effort.

In May 2012, Crum & Forster held its first Community Volunteer Day. The mission of the day was to “give back to the communities” in which Crum & Forster companies operate and their employees live. At eight locations across the united States, three hundred volunteers worked on a variety of projects ranging from improving school buildings and grounds stocking a food pantry, to improving the local environment through beautification projects. In addition, the company made financial contributions to local charities.

By all measures, the event was an unqualified success. Crum employees forged new bonds with the people and communities with whom they so willingly shared their time and effort, helping improve their communities.

Based on the success of this inaugural event, the Company sponsored another Community Volunteer Day in November 2012. Over 300 employees from 25 offices of C&F businesses once again participated in a variety programs within their communities, helping those less fortunate and strengthening community ties.

The good work does not end with the Community Volunteer Day program.

Launching the Community Donation Program in October, Crum & Forster will make a charitable donation of $50 on behalf of every employee in the company (approximately 1,500 employees). Employee committees in each office of each C&F company have selected one or more local charities. Employees will go to a designated website and select a local charity. Once the results are tallied, checks will be sent to the local charities with acknowledgement to the office and employees.

By year-end, all of the charitable contributions of Crum & Forster through the programs mentioned and others should raise close to $1,000,000 for local charities and community support.

Please follow the link: http://vimeopro.com/user12947009/community-volunteer-day to a presentation highlighting the C&F Community Volunteer Day activities around the country last May. The dynamic spirit of generosity and concern for the less fortunate in our communities is alive and well at all of the offices of Crum & Forster across the united States, thanks to the generous spirit of the people of Crum & Forster.

Crum & Forster luNCheoN

On July 24, Crum & Forster CEO, Doug Libby, hosted a lunch for the Crum & Forster employees in the greater New York/New Jersey region. About seven hundred employees attended the lunch held in Morristown, NJ, near Crum & Forster headquarters. Prem Watsa, Fairfax’s Chairman and CEO, was the guest of honor. Other notable guests attending included Bob Gunn, Brandon Shweitzer, and Tim Price, all members of the Fairfax Board of Directors, and the Fairfax Insurance Group President and COO, Andy Barnard.

This annual event is an opportunity for Prem to address the Crum & Forster employees about Fairfax, strategic

direction, financial health, and initiatives underway across the organization, and his outlook for the overall economy.

Doug Libby provided opening remarks. After welcoming Prem and the other guests, Doug noted the principal drivers distinguishing Crum & Forster–an entrepreneurial operating philosophy combined with a culture of caring and dedication to charitable giving.

After a review of Crum’s charitable efforts in the past year highlighted by the inaugural community volunteer day (more on this in the article below), Doug introduced Mr. Watsa.

Prem opened his remarks noting the many contributions of Crum, its staff, and its leadership over the years to the success of Fairfax. He noted that this success is firmly rooted in the culture

found at Crum, a culture built by empowering company employees at all levels to make decisions and take charge in their roles. As Prem said, “A decentralized structure unleashes talent.”

He went on to speak about the Fairfax employee stock purchase plan. The stock purchase plan is a vehicle for employees to participate and share in the continued success and growth at Fairfax. Prem exhorted all attending the event to participate in the plan saying that the company’s strong financial position and the dedicated excellence of the Fairfax company employees are the ingredients for long-term company success.

Prem concluded saying, “We have a wonderful culture, a great company, and a lovely group of people. Take stock in the plan, put it away, and let the magic of compounding work for you.”