Flagstone Re Posts $186 Million Q3 Net Loss; $111 Million for 9 Months

Bermuda-based Flagstone Reinsurance Holdings Limited announced a net loss available to common shareholders for the quarter ended September 30, 2008 of $(186.5) million, or $(2.18) per diluted share, compared to net income of $66.2 million, or $0.77 per diluted share, for the quarter ended September 30, 2007.

Net loss available to common shareholders for the nine months ended September 30, 2008 was $(111.7) million, or $(1.31) per diluted share, compared to net income of $116.6 million, or $1.44 per diluted share, for the nine months ended September 30, 2007.

Flagstone’s basic book value per share of $12.68 and diluted book value per share of $12.62, were down 14.9% and 12.7% for the quarter (ratios inclusive of dividends),

The operating loss, which excludes capital gains/losses and other investment items, for the third quarter was $46.8 million, compared to a profit of $58 million in the same period of 2007, a 51.9 percent drop.

Chairman Mark Byrne noted: “The third quarter was a challenging one for our industry in that we combined an active hurricane season with tremendous capital markets distress. The combination of these factors has had a negative effect on our financial results, which we would have preferred to avoid, but nonetheless has proven that we are well capitalized, have proactive risk management, and are capable of managing an unprecedented investment environment, where 12 of the 14 asset classes we follow have negative returns for the year. We in management are large shareholders of Flagstone and are committed to enhancing shareholder value. We have further demonstrated this through our share repurchase program.

“The negative financial result should not be allowed to overshadow some of the significant organizational success we achieved during the quarter. We successfully reorganized our operating platform with the merger of our Swiss and Bermudan operations to a single Swiss platform that gives us significant operational efficiencies.”
He also pointed out that Flagstone had rebranded its South African operation into Flagstone Reinsurance Africa Limited, and had completed a tender for all of the remaining shares of Alliance Re in Cyprus, “which, he said “will be rebranded Flagstone Alliance Insurance Plc. focused on MENA region facultative, treaty, and insurance businesses.”

Flagstone has also signed an agreement to buy Marlborough Underwriting Agency Limited, operators of Syndicate 1861 at Lloyds. Byrne described the move as a “key strategic addition to Flagstone, allowing us to complete our mission of being a multiline reinsurer and an insurer in selected markets. It provides the Company with a Lloyd’s platform with access to both London business and that sourced globally from our network of offices.”

Turning to the investment side, Byrne noted: “Q3 was a poor investment quarter of historical proportions for the market. Our analysis indicates the broad asset returns to be worse than any period since the Great Crash of 1929, and it is not possible to plan for these periods without sacrificing satisfactory investment results 99 out of 100 years. Our investment approach is to diversify across multiple asset classes with the goal of producing a superior risk adjusted return. This approach did not work well during the quarter or the year as most asset classes correlated highly on the downside.”

The full report and access to the earnings conference call may be obtained on the Company’s web site at: www.flagstonere.bm.

Source: Flagstone Re