Intercorporate Relationships

        The following is a list of our principal subsidiaries. Indented companies are subsidiaries of the non-indented company which precedes them. All subsidiaries were wholly-owned, directly or through another subsidiary, as of December 31, 2017 unless otherwise noted.

DESCRIPTION OF THE BUSINESS

Overview

        Fairfax is a holding company which, through its subsidiaries, is primarily engaged in property and casualty insurance and reinsurance and investment management. Fairfax's corporate objective is to achieve a high rate of return on invested capital and build long-term shareholder value. We seek to differentiate ourselves by combining disciplined underwriting with the investment of our assets on a total return basis.

        The financial performance of a property and casualty company is determined by two principal factors: (i) the operating results of the insurance operations, which is determined by the level of premiums collected in relation to claims and operating costs, and (ii) the returns generated by the investment portfolios of the insurers.

        Our insurance and reinsurance companies operate on a decentralized basis, with autonomous management teams applying a focused underwriting strategy to their markets. Our subsidiaries provide a full range of property and casualty products, maintaining a diversified portfolio of risks across all classes of business, geographic regions, and types of insureds.

        Our investments are centrally managed for all the Fairfax group of companies by Hamblin Watsa Investment Counsel Ltd. ("Hamblin Watsa"), a wholly-owned subsidiary of Fairfax. Hamblin Watsa emphasizes a conservative value investment philosophy, seeking to invest assets on a total return basis, which includes realized and unrealized gains over the long-term.

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        Since 2011, we have acquired companies that are in industries other than insurance and re-insurance where the companies met our investment criteria. Such companies are run on a decentralized basis with autonomous management and represent a small portion of Fairfax's consolidated operations.

        For a full description of our business see our corporate profile, the notes to our audited consolidated financial statements and management's discussion and analysis of financial conditions and results of operations, all in our 2017 Annual Report.

Competition

        The property and casualty insurance industry and the reinsurance industry are both highly competitive, and we believe that they will remain highly competitive in the foreseeable future. Competition in our industry is based on many factors, including premiums charged and other terms and conditions offered, products and services provided, commission structure, financial ratings assigned by independent rating agencies, speed of claims payment, reputation, selling effort, perceived financial strength and the experience of the insurer or reinsurer in the line of insurance or reinsurance to be written. We compete, and will continue to compete, with major U.S. and non-U.S. insurers and reinsurers, as well as certain underwriting syndicates, some of which have greater financial, marketing and management resources than we do. We also are aware that other financial institutions, such as banks, are now able to offer services similar to those offered by our insurance subsidiaries. In addition, in recent years we have seen the creation of alternative products from capital market participants that are intended to compete with reinsurance products.

Cycles of Insurance

        Demand for insurance and reinsurance is influenced significantly by the underwriting results of primary insurers and prevailing general economic conditions. Factors such as changes in the level of employment, wages, consumer spending, business investment and government spending, the volatility and strength of the global capital markets and inflation or deflation all affect the business and economic environment and, ultimately, the demand for insurance and reinsurance products.

        The property and casualty insurance business historically has been characterized by periods of intense price competition due to excess underwriting capacity, known as a soft insurance market, when companies may underprice business to gain market share. Such inadequate pricing reduces underwriting margins. When excess capital is removed from the industry, it leads to periods when shortages of underwriting capacity have permitted attractive premium levels. This is known as a hard insurance market. We expect to continue to experience the effects of this cyclicality.

        In the reinsurance industry, the supply of reinsurance is related to prevailing prices and levels of surplus capacity that, in turn, may fluctuate in response to changes in rates of return being realized. It is possible that premium rates or other terms and conditions of trade could vary in the future, that the present level of demand will not continue because the larger insurers may require less reinsurance or that the present level of supply of reinsurance could increase as a result of capital provided by recent or future market entrants or by existing reinsurers.

Employees

        As at December 31, 2017, Fairfax (the holding company) had 40 employees and our subsidiaries had in aggregate approximately 38,000 full-time employees.

GENERAL DEVELOPMENT OF THE BUSINESS

        Over the past three completed financial years our total assets have increased from $27.8 billion as at December 31, 2015 to $64.1 billion as at December 31, 2017. Common shareholders' equity was $8.9 billion, $8.5 billion and $12.5 billion as at December 31, 2015, 2016 and 2017 respectively. For the year ended December 31, 2015, Fairfax had revenue of $9.6 billion and net earnings attributable to shareholders of Fairfax of $568 million. For the year ended December 31, 2016, Fairfax had revenue of $9.3 billion and net loss attributable to shareholders of Fairfax of $512.5 million. For the year ended December 31, 2017, Fairfax had revenue of $16.2 billion and net earnings attributable to shareholders of Fairfax of $1.7 billion.

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        For a description of the recent developments of our company, see our Chairman's letter to shareholders in our 2017 Annual Report. For a description of our acquisitions and divestitures over the last three years, see Note 23 (Acquisitions and Divestitures) to our audited consolidated financial statements in our 2017 Annual Report. We have filed a Form 51-102F4 — Business Acquisition Report with respect to one of our acquisitions referenced in Note 23 (Acquisitions and Divestitures) to our audited consolidated financial statements in our 2017 Annual Report. For a description of our capital transactions, see Note 16 (Total Equity) to our annual consolidated financial statements in our 2017 Annual Report. For a description of our debt profile, see Note 15 (Borrowings) to our audited consolidated financial statements in our 2017 Annual Report.

RISK FACTORS

        We have identified certain risks and uncertainties to which our business, operations and financial conditions are subject, which are described under "Issues and Risks" on pages 189-200 of our 2017 Annual Report. Additional risks and uncertainties not known to us or that we currently believe are not reasonably likely to materially affect us may also impair our business, results of operations and financial condition. An explanation of our risk management approach can be found in Note 24 (Financial Risk Management) to our 2017 Annual Report.

DIVIDENDS

        We have declared the following dividends since 2015 on our subordinate voting shares and multiple voting shares (collectively, the "Equity Shares"):

•

On January 5, 2015, we declared a dividend of $10.00 per Equity Share, payable on January 27, 2015.



•

On January 5, 2016, we declared a dividend of $10.00 per Equity Share, payable on January 27, 2016.



•

On January 4, 2017, we declared a dividend of $10.00 per Equity Share, payable on January 26, 2017.



•

On January 3, 2018, we declared a dividend of $10.00 per Equity Share, payable on January 25, 2018.

The dividends were payable in U.S. dollars. Future dividends on our Equity Shares, if any, are expected to be paid in U.S. currency.

        Dividends of CDN$1.1445 per Series C preferred share were paid to holders of our Series C preferred shares during each of 2015, 2016 and 2017.

        Dividends of CDN$0.93768, CDN$0.90972 and CDN$0.9262 per Series D preferred share were paid to holders of our Series D preferred shares during each of 2015, 2016 and 2017, respectively.

        Dividends of CDN$0.842515, CDN$0.72752 and CDN$0.72752 per Series E preferred share were paid to holders of our Series E preferred shares during each of 2015, 2016 and 2017, respectively.

        Dividends of CDN$0.49975, CDN$0.66222 and CDN$0.67939 per Series F preferred share were paid to holders of our Series F preferred shares during each of 2015, 2016 and 2017, respectively.

        Dividends of CDN$1.144875, CDN$0.8295 and CDN$0.8295 per Series G preferred share were paid to holders of our Series G preferred shares during each of 2015, 2016 and 2017, respectively.

        Dividends of CDN$0.18300, CDN$0.76222 and CDN$0.77911 per Series H preferred share were paid to holders of our Series H preferred shares during each of 2015, 2016 and 2017, respectively.

        Dividends of CDN$1.25, CDN$0.927 and CDN$0.927 per Series I preferred share were paid to holders of our Series I preferred shares during each of 2015, 2016 and 2017, respectively.

        Dividend payments on our Series J preferred shares commenced during 2016. Dividends of CDN$0.8360 and CDN$0.85141 were paid to holders of our Series J preferred shares during 2016 and 2017, respectively.

        Dividends of CDN$1.25, CDN$1.25 and CDN$1.188314 per Series K preferred share were paid to holders of our Series K preferred shares during each of 2015, 2016 and 2017, respectively.

        Dividends of CDN$0.98091, CDN$1.1875 and CDN$1.1875 per Series M preferred share were paid to holders of our Series M preferred shares during each of 2015, 2016 and 2017, respectively.

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        The declaration and payment of dividends are at the sole discretion of our board of directors and depend on, among other things, our financial condition, general business conditions, legal restrictions regarding the payment of dividends by us and other factors which the board of directors may in the future consider to be relevant. As a holding company with no direct operations, we rely on cash dividends and other payments from our subsidiaries and our own cash balances to pay dividends to our shareholders.

CAPITAL STRUCTURE

General Description

        For a general description of our capital structure please see "Description of Subordinate Voting Shares and Preferred Shares" at pages 52-64 of our short form base shelf prospectus dated October 19, 2017 filed with the Canadian securities regulatory authorities and incorporated herein by reference.

        On February 1, 2010 we issued 8,000,000 Series E preferred shares. On February 26, 2010 we issued 563,381 subordinate voting shares. On July 28, 2010 we issued 10,000,000 Series G preferred shares. On October 5, 2010 we issued 12,000,000 Series I preferred shares. On March 21, 2012 we issued 9,500,000 Series K preferred shares. On November 15, 2013, we issued 1,000,000 subordinate voting shares. On December 31, 2014, holders representing 3,983,616 Series C preferred shares exercised their right to convert their Series C preferred shares into Series D preferred shares, on a one-for-one basis, with the result that 3,983,616 Series D preferred shares were issued. On March 3, 2015 we issued 1,150,000 subordinate voting shares and 9,200,000 Series M preferred shares. On March 31, 2015, holders representing 3,572,044 Series E preferred shares exercised their right to convert their Series E preferred shares into Series F preferred shares, on a one-for-one basis, with the result that 3,572,044 Series F preferred shares were issued. On April 10, 2015, in connection with the initial public offering of Cara, we issued an aggregate of 19,294 subordinate voting shares, on a private placement basis. On September 30, 2015, holders representing 2,567,048 Series G preferred shares exercised their right to convert their Series G preferred shares into Series H preferred shares, on a one-for-one basis, with the result that 2,567,048 Series H preferred shares were issued. On December 31, 2015, holders representing 1,534,447 Series I preferred shares exercised their right to convert their Series I preferred shares into Series J preferred shares, on a one-for-one basis, with the result that 1,534,447 Series J preferred shares were issued. On March 2, 2016 we issued 1,000,000 subordinate voting shares. In the third quarter of 2017, we issued an aggregate of 5,075,894 subordinate voting shares in connection with the acquisition of Allied World Assurance Company Holdings, AG (which was subsequently renamed Allied World Assurance Company Holdings, GmbH). For a general description of each series of our preferred shares see our prospectus supplements referenced below, each of which has been filed with the Canadian securities regulatory authorities and is incorporated herein by reference:

•

For the Series C preferred shares, see "Description of the Series C Shares" at pages S-11 to S-15 of our prospectus supplement dated September 29, 2009;



•

For the Series D preferred shares, see "Description of the Series D Shares" at pages S-15 to S-19 of our prospectus supplement dated September 29, 2009;



•

For the Series E preferred shares, see "Description of the Series E Shares" at pages S-11 to S-14 of our prospectus supplement dated January 25, 2010;



•

For the Series F preferred shares, see "Description of the Series F Shares" at pages S-15 to S-18 of our prospectus supplement dated January 25, 2010;



•

For the Series G preferred shares, see "Description of the Series G Shares" at pages S-12 to S-15 of our prospectus supplement dated July 21, 2010;



•

For the Series H preferred shares, see "Description of the Series H Shares" at pages S-16 to S-19 of our prospectus supplement dated July 21, 2010;



•

For the Series I preferred shares, see "Description of the Series I Shares" at pages S-12 to S-15 of our prospectus supplement dated September 28, 2010;



•

For the Series J preferred shares, see "Description of the Series J Shares" at pages S-15 to S-19 of our prospectus supplement dated September 28, 2010;

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•

For the Series K preferred shares, see "Description of the Series K Shares" at pages S-13 to S-17 of our prospectus supplement dated March 14, 2012; and



•

For the Series M preferred shares, see "Description of the Series M Shares" at pages S-21 to S-25 of our prospectus supplement dated February 24, 2015.

        Our short form base shelf prospectus and supplementary prospectuses are available on SEDAR at www.sedar.com.

Ratings

Long Term Debt

        As of the date hereof, our senior, unsecured long term debt has been assigned a rating of BBB- with a stable outlook by Standard & Poor's Ratings Services ("S&P"). Moody's Investors Service ("Moody's") has assigned a Baa3 rating with a stable outlook on our senior unsecured long term debt. DBRS Limited ("DBRS") has assigned a BBB "(high)" rating with a stable outlook on our senior unsecured long term debt. A.M. Best ("A.M. Best") has assigned a rating of bbb with a stable outlook on our senior unsecured long term debt.

        S&P's credit ratings are on a long term debt rating scale that ranges from AAA to D, which represents the range from highest to lowest quality of such securities rated. A rating of BBB- by S&P is the fourth highest of ten categories and indicates that the obligation exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. The addition of a plus (+) or minus (-) designation after a rating indicates the relative standing within a particular rating category.

        Moody's credit ratings are on a long-term debt rating scale that ranges from Aaa to C, which represents the range from highest to lowest quality of such securities rated. A rating of Baa by Moody's is the fourth highest of nine categories and is assigned to debt securities that may possess certain speculative elements and are subject to moderate credit risk. The addition of a 1, 2 or 3 modifier after a rating indicates the relative standing within a particular rating category. The modifier 1 indicates that the issue ranks in the higher end of its generic rating category, the modifier 2 indicates a mid-range ranking and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category.

        The DBRS credit ratings are on a long-term debt rating scale that ranges from AAA to D, which represents the range from highest to lowest quality of such securities rated. A rating of BBB is in the fourth highest category of ten categories and is assigned to debt that is considered to be of adequate credit quality. The capacity for payment of financial obligations is considered acceptable, but the entity may be vulnerable to future events. All rating categories other than AAA and D also contain subcategories "(high)" and "(low)". The absence of either a "(high)" or "(low)" designation indicates the rating is in the middle of the category.

        A.M. Best credit ratings are on a long-term debt rating scale that ranges from aaa to c, which represents the range from highest to lowest quality of such securities rated. A rating of bbb is the fourth highest category of nine categories and is assigned to debt that is considered to be of adequate credit quality, however, the issue is more susceptible to changes in economic or other conditions. The assignment of a plus (+) or minus (-) designation after a rating indicates whether the credit quality is near the top or bottom of a category.

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        S&P's preferred share rating scale is a current assessment of the creditworthiness of an obligor with respect to a specified preferred share obligation issued in the Canadian market, relative to preferred shares issued by other issuers in the Canadian market. There is a direct correspondence between the specific ratings assigned on the Canadian preferred share scale and the various rating levels on the global debt rating scale. The rating scale ranges from P-1(High) to D, which represents the range from highest to lowest quality of such securities rated. A rating of P-3 by S&P is the third highest of eight categories and indicates that the obligation is less vulnerable to nonpayment than other speculative issues. The ratings from P-1 to P-3 may be modified by "high", "mid" and "low" grades which indicate relative standing within the major rating categories.

        The DBRS preferred share rating scale is meant to give an indication of the risk that a borrower will not fulfill its full obligations in a timely manner. The "Pfd-3" rating is in the third highest category available from DBRS for preferred shares. According to the DBRS rating system, securities rated Pfd-3 are of adequate credit quality. "High" or "low" grades are used to indicate the relative standing within a rating category. The absence of either a "high" or "low" designation indicates the rating is in the "middle" of the category.

        The "Ba" rating is the fifth highest of the nine categories used by Moody's for hybrid securities. The modifier "2" indicates that the obligation ranks in the middle of the "Ba" rating category. The "hyb" indicator signals the potential for ratings volatility due to less predictable exogenous (and often non-credit linked) factors such as regulatory and/or government intervention coupled with a hybrid's equity-like features.

        The "bb+" rating is the fifth highest category used by A.M. Best for hybrid securities and is assigned to issues with fair credit characteristics. The assignment of a plus (+) or minus (-) designation after a rating indicates whether the credit quality is near the top or bottom of a category.

        These credit ratings are intended to provide investors with an independent measure of credit quality of any issue of securities. The credit ratings accorded to our debt and preferred shares by the rating agencies are not recommendations to purchase, hold or sell any security in as much as such ratings do not comment as to market price or suitability for a particular investor. Any rating may not remain in effect for any given period of time or may be revised or withdrawn entirely by a rating agency in the future if in its judgment circumstances so warrant, and if any such rating is so revised or withdrawn, Fairfax is under no obligation to update this disclosure. We have paid customary rating fees to S&P, Moody's, DBRS and A.M. Best in connection with the above-mentioned ratings. In addition, we have made customary payments in respect of certain other services provided to us by S&P and A.M. Best during the last two years.

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MARKET FOR SECURITIES

Trading Price and Volume

        Our subordinate voting shares are listed for trading on the Toronto Stock Exchange (the "TSX") and trade in Canadian dollars under the symbol "FFH" and in U.S. dollars under the symbol "FFH.U". Our Series C preferred shares are listed on the TSX under the symbol "FFH.PR.C", our Series D preferred shares are listed on the TSX under the symbol "FFH.PR.D", our Series E preferred shares are listed on the TSX under the symbol "FFH.PR.E", our Series F preferred shares are listed on the TSX under the symbol "FFH.PR.F", our Series G preferred shares are listed on the TSX under the symbol "FFH.PR.G", our Series H preferred shares are listed on the TSX under the symbol "FFH.PR.H", our Series I preferred shares are listed on the TSX under the symbol "FFH.PR.I", our Series J preferred shares are listed on the TSX under the symbol "FFH.PR.J", our Series K preferred shares are listed on the TSX under the symbol "FFH.PR.K", and our Series M preferred shares are listed on the TSX under the symbol "FFH.PR.M". The following table sets out the market price range in CDN$ and aggregate trading volume of our subordinate voting shares and preferred shares on the TSX for the periods indicated:

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Prior Sales

        On December 4, 2017, we completed the sale of CDN$650 million aggregate principal amount of 4.25% Senior Notes due 2027 at an issue price of CDN$99.992 per CDN$100 principal amount of Senior Notes.

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