Fairfax Financial to Acquire Allied World for $4.9 Billion in Cash and Stock

TORONTO, Ontario and ZUG, Switzerland–(BUSINESS WIRE)–

(Unless otherwise provided herein, all dollar amounts in this
announcement are expressed in U.S. dollars)

Highlights:

— Cash and share offer with dividend for total value of $54.00 per
Allied World share – $10.00 in cash and $44.00 in Fairfax Shares

— 18% premium to the last close per Allied World share

— Fairfax has the option to increase the total cash payable to Allied
World shareholders by up to $30.00 per Allied World share, for a total
of $40.00 cash per Allied World share

— Offer unanimously supported by the Allied World board

— Combination of Allied World and Fairfax creates a world leader in
property and casualty insurance, reinsurance and investments (more
details in investor presentation at http://www.fairfax.ca/Investors/Allied_World/default.aspx)

Fairfax Financial Holdings Limited (“Fairfax”) (TSX:FFH)(TSX:FFH.U) and
Allied World Assurance Company Holdings, AG (“Allied World”) (NYSE:AWH)
are pleased to announce that they have entered into a merger agreement
(the “Agreement”), pursuant to which Fairfax will acquire all of the
outstanding registered ordinary shares of Allied World (the “Allied
World Shares”). Under the terms of the Agreement, based on Friday’s
closing stock price on the TSX for Fairfax of C$614.45 ($460.65), Allied
World shareholders would receive a combination of Fairfax subordinate
voting shares (the “Fairfax Shares”) and cash equal to $54.00 per Allied
World Share, for a total equity value of approximately $4.9 billion. The
$54.00 per share offer price represents a premium of 18% to the closing
price of $45.77 per Allied World Share on December 16, 2016, being the
last business day prior to this announcement. The transaction has been
unanimously approved by the boards of directors of both companies.

Allied World’s position as a market-leading global property, casualty
and specialty insurer and reinsurer, its major worldwide presence and
its disciplined approach to underwriting make it a natural candidate to
join Fairfax’s expanding worldwide operations. Allied World’s growing
international reach is highly complementary to Fairfax’s existing
worldwide operations and the acquisition further diversifies Fairfax’s
group risk portfolio. In addition, Allied World will be able to leverage
Fairfax’s expertise in Canada, the United States and international
insurance and reinsurance markets, thus enhancing Allied World’s global
product offering and providing it with expanded underwriting
opportunities and support.

“We are excited to have Allied World join the Fairfax group,” said Prem
Watsa, Chairman and CEO of Fairfax. “Allied World is a high-quality
company with an excellent long-term track record and an outstanding
management team led by Scott Carmilani. Allied World will operate within
the Fairfax group on a decentralized basis after closing, and we are
looking forward to supporting Scott and the entire team at Allied World
in growing their business over the long-term.”

“This is a tremendous opportunity for Allied World,” said Scott
Carmilani, President, CEO and Chairman of Allied World. “Our
shareholders are being rewarded for the strong performance of Allied
World over the last 10 years since going public. We are strategically
aligning ourselves with Fairfax, one of the premier companies in the
insurance industry which has a great track record of supporting their
operating companies and creating value for shareholders. We are excited
to be joining the Fairfax organization – we share their passion for
underwriting excellence and their entrepreneurial approach to growing
the business with a long-term orientation. Our shareholders will benefit
from Fairfax’s tremendous investment capabilities as demonstrated by its
superior long-term investment track record. The success of Fairfax’s
decentralized approach in empowering their management teams to drive
profitable underwriting and combining Fairfax’s investment philosophy
will position us to create long-term value for shareholders. Fairfax
provides a great home for Allied World to continue to build a strong
business for our customers, business partners and employees.”

Transaction Summary

Under the terms of the Agreement, Allied World shareholders will receive
cash consideration of $10.00 for each Allied World Share, $5.00 of which
will be paid in the form of a pre-closing cash dividend by Allied World.
A portion of the stock consideration, having a value of $14.00 based on
the closing price of Fairfax Shares as of December 16, 2016 (the
“Fairfax Closing Price”), is payable at a fixed exchange ratio of
0.030392. The remaining portion of the stock consideration to Allied
World will be a number of Fairfax Shares with a value equal to $30.00,
with such number of Fairfax Shares determined based on the volume
weighted average closing price of Fairfax Shares for the 20 trading days
ending on the day prior to closing (provided that this volume weighted
average price is no less than $435.65 and no greater than $485.65 per
share, $25.00 below and above the Fairfax Closing Price, respectively).
If the volume weighted average price of Fairfax Shares during this
period is above $485.65, the stock portion of the consideration will be
fixed at 0.061772 Fairfax Shares for each share of Allied World, and if
it is below $435.65 per share, the stock portion of the consideration
will be fixed at 0.068862 Fairfax Shares for each share of Allied World.
Additionally, on or before 75 days after the date of the Agreement,
Fairfax has the option to replace on a dollar-for-dollar basis this
portion of the stock consideration with cash in an amount up to $30.00
per Allied World Share, together with the dividend, for up to a total
cash consideration of $40.00 per Allied World Share. Fairfax may elect
to fund the $30.00 in cash by an equity or debt issuance or by bringing
in third party partners.

It is intended that the transaction will be effected by way of an
exchange offer (the “Offer”), followed by a squeeze-out merger (the
“Merger”), both in accordance with the applicable laws.

The transaction is subject to a sufficient number of the outstanding
Allied World Shares having been tendered in the Offer, approval by
Allied World shareholders and, to the extent required by applicable
regulations, Fairfax shareholders, approvals from applicable regulators
and satisfaction of other customary closing conditions. Closing of the
transaction is currently expected to occur in the second quarter of 2017.

In accordance with section 611(c) of the Toronto Stock Exchange (“TSX”)
Company Manual, the transaction will require the approval of Fairfax
shareholders by a majority vote since the Fairfax Shares issued in the
transaction will exceed 25% of the total number of outstanding Fairfax
Shares (assuming Fairfax does not exercise its option to replace part of
the share consideration with cash). Prem Watsa, Fairfax’s Chairman and
CEO, and The Sixty Two Investment Company Limited (“Sixty Two”), a
company controlled by Prem Watsa, who collectively hold an aggregate
voting interest in Fairfax of approximately 43%, have signed a voting
support agreement in favour of the Fairfax share issuance necessary in
connection with the transaction. Fairfax intends to seek written
consents from other shareholders of Fairfax that, together with the
votes represented by the shares held by Prem Watsa and Sixty Two,
represent more than 50% of the votes attached to all multiple and
subordinate voting shares of Fairfax and will request that the TSX
accept these written consents to support the transaction as evidence of
shareholder approval and not require Fairfax to hold a shareholders’
meeting to approve the issuance of Fairfax Shares in connection with the
transaction. In the event that Fairfax is unable to proceed by written
consent, a meeting of Fairfax shareholders will be convened to approve
the share issuance.

The Offer documents will be made available on Fairfax’s website at www.fairfax.ca
and will also be available on EDGAR at www.sec.gov.
Further information regarding the transaction, including a copy of the
Agreement, will be available on Fairfax’s website at www.fairfax.ca,
on Allied World’s website at www.awac.com,
on SEDAR at www.sedar.com
and on EDGAR at www.sec.gov.

BofA Merrill Lynch is acting as exclusive financial advisor to Allied
World. Fairfax retained Shearman & Sterling LLP as United States legal
counsel, Torys LLP as Canadian legal counsel and Homburger AG as Swiss
legal counsel. Willkie Farr & Gallagher LLP is acting as United States
legal counsel to Allied World and Baker & McKenzie LLP and Walder Wyss
Ltd are acting as Swiss legal counsel to Allied World.

Conference Call Information

Fairfax and Allied World will hold a joint conference call to discuss
the Offer at 8 a.m. Eastern time on Monday, December 19, 2016. The call,
consisting of a joint presentation by Fairfax and Allied World followed
by a question period, may be accessed at 1-888-996-4915 (Canada or U.S.)
or 1-210-234-0014 (International) with the passcode “FAIRFAX”. A replay
of the call will be available from shortly after the termination of the
call until 5:00 p.m. Eastern time on January 9, 2017. The replay may be
accessed at 1-866-427-6404 (Canada or U.S.) or 1-203-369-0894
(International).

About Fairfax

Fairfax is a holding company which, through its subsidiaries, is engaged
in property and casualty insurance and reinsurance and investment
management.

About Allied World

Allied World, through its subsidiaries and brand known as Allied World,
is a global provider of innovative property, casualty and specialty
insurance and reinsurance solutions. Allied World offers superior client
service through a global network of offices and branches. All of Allied
World’s rated insurance and reinsurance subsidiaries are rated A by A.M.
Best Company, A by Standard & Poor’s, and A2 by Moody’s, and our Lloyd’s
Syndicate 2232 is rated A+ by Standard & Poor’s and AA- by Fitch.

IMPORTANT INFORMATION AND WHERE TO FIND IT

This announcement is for informational purposes only and does not
constitute or form part of an offer to sell or exchange or the
solicitation of an offer to buy, exchange or subscribe to any
securities, nor shall there be any sale of securities in any
jurisdiction in which such offer, solicitation, sale or exchange would
be unlawful prior to registration or qualification under the securities
laws of any such jurisdiction. This announcement is not an offer of
securities for sale into the United States. No offering of securities
shall be made in the United States except pursuant to registration under
the U.S. Securities Act of 1933, or an exemption therefrom.

In connection with the exchange offer for all of the outstanding
registered ordinary shares of Allied World, Fairfax expects to file a
registration statement on Form F-4, which will include a prospectus and
proxy statement of Allied World (the “prospectus/proxy statement”), and
a Tender Offer statement on Schedule TO (the “Schedule TO”), and may
file amendments thereto, and soon thereafter Allied World will file a
Solicitation / Recommendation Statement on Schedule 14D-9 with respect
to the exchange offer and may file amendments thereto. The exchange
offer has not yet commenced. The exchange offer will be made exclusively
by means of, and subject to, the terms and conditions set out in, an
offer document containing and setting out the terms and conditions of
the offer and a letter of transmittal to be delivered to Allied World,
filed with the United States Securities and Exchange Commission (the
“SEC”) and mailed to Allied World shareholders. The exchange offer will
be made by Fairfax or an affiliate of Fairfax and not by any other
person.

The release, publication or distribution of this announcement in certain
jurisdictions may be restricted by law and therefore persons in such
jurisdictions into which this announcement is released, published or
distributed should inform themselves about and observe such restrictions.

SHAREHOLDERS OF ALLIED WORLD ARE URGED TO READ ANY DOCUMENTS REGARDING
THE EXCHANGE OFFER CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME
AVAILABLE (INCLUDING THE EXHIBITS THERETO) AS THEY WILL CONTAIN
IMPORTANT INFORMATION ABOUT THE EXCHANGE OFFER.

The registration statement, the Schedule TO and other related documents
in relation to the exchange offer, as well as Fairfax’s other public
filings with the SEC, may be obtained without charge at the SEC’s
website, www.sec.gov,
after they have been filed. Any materials filed with the SEC may also be
obtained without charge at Fairfax’s website, www.fairfax.ca.
This material is not a substitute for the registration statement, the
Schedule TO and other related documents in relation to the exchange
offer that will be filed with the SEC or sent to shareholders in
connection with the proposed transactions.

The proxy statement and any other relevant documents filed by Allied
World with the SEC, as well as any amendments or supplements to those
documents and Allied World’s other public filings with the SEC, may be
obtained without charge at the SEC’s website, www.sec.gov,
after they have been filed. Any materials filed with the SEC may also be
obtained without charge at Allied World’s website, www.awac.com.

This announcement does not constitute an offer or a solicitation in any
jurisdiction in which such offer or solicitation is unlawful. An offer
will not be made in, nor will deposits be accepted in, any jurisdiction
in which the making or acceptance thereof would not be in compliance
with the laws of such jurisdiction. However, Fairfax may, in its sole
discretion, take such action as it may deem necessary to extend an offer
in any such jurisdiction.

PARTICIPANTS IN THE SOLICITATION

Fairfax and Allied World and their respective directors and executive
officers may be deemed to be participants in any solicitation of proxies
from Allied World’s and, if necessary, Fairfax’s shareholders in favour
of the proposed transactions. Information about Allied World’s directors
and executive officers and their ownership in Allied World common stock
is available in the proxy statement dated March 10, 2016 for Allied
World’s 2016 annual general meeting of shareholders. Information about
Fairfax’s directors and executive officers and their ownership of
Fairfax common stock is available in the management proxy circular dated
March 11, 2016 for Fairfax’s 2016 annual general meeting of
shareholders. Additional information regarding participants in the proxy
solicitation may be obtained by reading the joint proxy
statement/prospectus when it becomes available.

Forward-Looking Statements

Certain statements contained herein may constitute forward-looking
statements within the meaning of applicable Canadian and United States
securities laws and are made pursuant to the “safe harbour” provisions
of the United States Private Securities Litigation Reform Act of 1995.
These include statements using the words “believe”, “expect”, “seek”,
“target”, “outlook”, “may”, “will”, “should”, “could”, “estimate”,
“continue”, “expect”, “intend”, “plan”, “predict”, “potential”,
“project” and “anticipate”, and similar statements which do not describe
the present or provide information about the past. Such forward-looking
statements are subject to known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or
achievements of Fairfax, Allied World or the combined company to be
materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements.
Such statements reflect the current views of management of Fairfax and
Allied World and are subject to a number of risks and uncertainties.
These statements are based on many assumptions and factors, including
general economic and market conditions, industry conditions, corporate
approvals, regulatory approvals, operational factors and other factors.
Any changes in such assumptions or factors could cause actual results to
differ materially from current expectations. All forward-looking
statements attributable to Fairfax and Allied World, or persons acting
on their behalf, are expressly qualified in their entirety by the
cautionary statements set forth in this paragraph. Undue reliance should
not be placed on such statements, which speak only as of the date they
are made. Such factors include, but are not limited to: the failure to
complete the Offer and/or the Merger or to complete them on the
currently proposed terms; a reduction in net earnings if loss reserves
of the combined company are insufficient; underwriting losses on the
risks the combined company insures that are higher or lower than
expected; the occurrence of catastrophic events with a frequency or
severity exceeding Fairfax’s or Allied World’s estimates; negative
rating agency actions; changes in market variables, including interest
rates, foreign exchange rates, equity prices and credit spreads, which
could negatively affect the combined company’s investment portfolio; the
cycles of the insurance and reinsurance markets and general economic
conditions, which can substantially influence the combined company and
its competitors’ premium rates and capacity to write new business;
insufficient reserves for asbestos, environmental and other latent
claims; exposure to credit risk in the event the combined company’s
reinsurers fail to make payments to the combined company under its
reinsurance arrangements; exposure to credit risk in the event the
combined company’s insureds, insurance producers or reinsurance
intermediaries fail to remit premiums that are owed to the combined
company or failure by the combined company’s insureds to reimburse the
combined company for deductibles that are paid by the combined company
on their behalf; the timing of claims payments being sooner or the
receipt of reinsurance recoverables being later than anticipated; the
inability of the combined company’s subsidiaries to maintain financial
or claims paying ability ratings; risks associated with implementing the
combined company’s business strategies; risks associated with the use of
derivative instruments; the failure of hedging methods to achieve their
desired risk management objective; a decrease in the level of demand for
insurance or reinsurance products, or increased competition in the
insurance industry; the impact of emerging claim and coverage issues;
the failure of any of the loss limitation methods that the combined
company employs; the combined company’s inability to access cash of its
subsidiaries; the combined company’s inability to obtain required levels
of capital on favourable terms, if at all; loss of key employees; the
combined company’s inability to obtain reinsurance or retrocessional
coverage in sufficient amounts, at reasonable prices or on terms that
adequately protect it; the passage of legislation subjecting the
combined company’s businesses to additional supervision or regulation,
including additional tax regulation, in the United States, Canada or
other jurisdictions in which it operates; the impact of acts of
terrorism and acts of war; risks associated with government
investigations of, and litigation and negative publicity related to,
insurance industry practice or any other conduct; risks associated with
political and other developments in foreign jurisdictions in which the
combined company operates; risks associated with legal or regulatory
proceedings; failures or security breaches of the combined company’s
computer and data processing systems; the influence exercisable by the
combined company’s significant shareholder; adverse fluctuations in
foreign currency exchange rates; dependence on independent brokers over
whom the combined company exercises little control; an impairment in the
carrying value of the combined company’s goodwill and indefinite-lived
intangible assets; the combined company’s failure to realize deferred
income tax assets; assessments and shared market mechanisms which may
adversely affect its U.S. insurance subsidiaries; the ability to
successfully integrate the transaction and realize certain synergies;
and the combined company’s ability to implement and achieve its business
strategies successfully. Additional risks and uncertainties are
described in: (i) Fairfax’s most recently issued Annual Report which is
available at www.fairfax.ca
and in its Supplemental and Base Shelf Prospectus (under “Risk Factors”)
filed with the securities regulatory authorities in Canada, which is
available on SEDAR at www.sedar.com;
and (ii) Allied World’s most recently issued Annual Report filed on Form
10-K, which is available on EDGAR at www.sec.gov.
Each of Fairfax and Allied World disclaims any intention or obligation
to update or revise any forward-looking statements and undertakes no
obligation to release publicly the results of any future revisions to
the forward-looking statements to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.

There can be no assurance that the Offer and/or the Merger will occur or
that the anticipated benefits of the Offer and Merger will be realized.
The completion of the Offer and the Merger is subject to various
approvals, including competition, antitrust and insurance regulatory
approvals.

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