Consolidated operating companies' competitive position is good, based on its diversification globally and by segment. Operating performance, historically weak, is good in 2006 and 2007. Liquidity has improved and should remain at this higher level prospectively. The capital adequacy ratio of the consolidated companies was 156% at year-end 2006 (including adjustments for finite reinsurance, reserve charges, catastrophe charges, and investments). Governance and internal risk controls are weak (but improving). Historical reserve charges, although nothing significant is expected currently. High, but decreasing, reinsurance recoverables. Historical utilization of finite reinsurance (reduced significantly in 2006). The counterparty credit rating on Fairfax Financial Holdings Ltd. (NYSE: FFH) is based on the company's good competitive position, improving earnings, good and improving capitalization, and strong liquidity.
