Flagstone Re Reports Basic Book Value per Share of $13.59 for end of Third Quarter 2007



    HAMILTON, BERMUDA, November 7 /CNW/ - Flagstone Reinsurance Holdings
Limited (NYSE:  FSR) announced today that their third quarter of 2007 ended with
a basic book value per share of $13.59, up 7.1% for the quarter and diluted
book value per share of $13.30, up 7.1% for the quarter both measures
inclusive of dividends. Net income available to common shareholders for the
quarter ended September 30, 2007 of $66.2 million, or $0.77 per diluted share,
compared to $56.9 million, or $0.79 per diluted share, for the quarter ended
September 30, 2006. Net income for the nine months ended September 30, 2007
was $116.6 million, or $1.44 per diluted share, compared to $88.8 million, or
$1.27 per diluted share, for the corresponding period of 2006.

    CEO David Brown commented: "The third quarter produced a very pleasing
result. Our gross premiums written for the year to date are up 77.6% over last
year, after eliminating the impact of Island Heritage which we consolidated
for the first time this quarter. This growth was achieved in a careful manner
without sacrificing quality or terms and conditions. The quarter was not
without losses, but they were moderate events for us and reserves established
in prior quarters proved to be solid."

    Chairman, Mark Byrne noted: "We regard the increase in diluted book value
per share, measured over intervals of three years, as the best single measure
of our performance for shareholders. Since the founding of the Company the
annualized growth is 18.9%, which is better than our 17% target. Since our
reinsurance book is exposed to catastrophes, our results will not be smooth
from quarter to quarter, and we do not issue earnings guidance."

    Summary of unaudited consolidated financial data for the periods are
follows:

    
                                Three Months Ended     Nine Months Ended
                               September   September September   September
                                 30, 2007   30, 2006   30, 2007   30, 2006
                               ----------- --------- ----------- ---------
                                (Expressed in thousands of U.S. dollars,
                                    except for share data and ratios)

    Gross Premiums Written     $  123,704  $ 61,914  $  512,062  $275,981
    Net Premiums Written       $   91,132  $ 50,525  $  471,245  $255,990
    Net Premiums Earned        $  138,799  $ 63,481  $  351,867  $119,728
    Net Investment Income      $   17,022  $  9,849  $   51,184  $ 24,650
    Net income                 $   66,249  $ 56,909  $  116,553  $ 88,755
    Total Shareholders' Equity $1,158,933  $802,416  $1,158,933  $802,416
    Combined Ratio (1)               61.9%     44.5%       75.9%     52.2%
    Basic Earnings per Share   $     0.78  $   0.79  $     1.44  $   1.28
    Diluted Earnings per Share
     (2)                       $     0.77  $   0.79  $     1.44  $   1.27
    Basic Book Value per Share $    13.59  $  11.22  $    13.59  $  11.22
    Diluted Book Value per
     Share                     $    13.30  $  11.09  $    13.30  $  11.09
    Growth in Basic Book Value
     per Share (3)                    7.1%      8.1%       12.8%     13.1%
    Growth in Diluted Book
     Value per Share (3)              7.1%      8.0%       11.7%     12.5%

    (1) Combined ratio is the sum of the loss and expense ratios, which
     are defined as follows:
         a. loss ratio is calculated by dividing loss and loss adjustment
          expenses by net premiums earned.
         b. expense ratio is calculated by dividing acquisition costs
          combined with general and administrative expenses by net
          premiums earned.
    (2) Diluted earnings per share for the quarter ended September 30,
     2007 does not contain the effect of:
         a. the warrant conversion as this would be anti- dilutive for
          GAAP purposes.
         b. the PSU conversion until the end of the performance period,
          when the number of shares issuable under the PSU Plan will be
          known. There were 1,538,000 PSU's outstanding under the PSU plan
          as at September 30, 2007.
    (3) Growth in basic book value per share and diluted book value per
     share represent the increase in book value in the period plus
     dividends paid.
    

    Basic and diluted book value per share are non-GAAP financial measures. A
reconciliation of these measures to shareholders' equity are presented at the
end of this release.

    Results of Operations

    Premiums

    Gross premiums written for the third quarter of 2007 were $123.7 million,
compared to $61.9 million for the same quarter of 2006, an increase of 99.8%
from the prior quarter. Gross premiums written for the nine months ended
September 30, 2007 were $512.1 million compared to $276.0 million for the same
period in 2006, an increase of 85.5% from the prior period.

    The increase in gross premiums written for both periods was due primarily
to: (i) increased participations on programs from our existing clients and the
addition of new clients due to our larger capital base and growth in our
franchise; and, (ii) the acquisition of the controlling interest in Island
Heritage in July 2007 which resulted in the inclusion of $21.8 million in
gross premiums for the quarter.

    The gross premiums written in third quarter 2007 include $68.5 million
for property catastrophe, $36.1 million for other property, and $19.1 million
for specialty compared to $41.3 million, $11.9 million and $8.7 million,
respectively, for the same quarter in 2006.

    The gross premiums written for the nine months ended September 30, 2007
include $373.8 million for property catastrophe, $84.5 million for other
property, and $53.8 million for specialty compared to $201.5 million, $53.7
million and $20.8 million, respectively, for the same period in 2006.

    Net premiums earned were $138.8 million for the third quarter of 2007
compared to $63.5 million for the same quarter of 2006. Net premiums earned
for the nine months ended September 30, 2007 were $351.9 million compared to
$119.7 million for the same period of 2006.

    Net investment income and net realized and unrealized gains and losses on
investments

    Net investment income for the third quarter of 2007 was $17.0 million,
compared to $9.8 million for the same quarter in 2006. Net investment income
for the nine months ended September 30, 2007 was $51.2 million, compared to
$24.7 million for the same period in 2006.

    The increase in investment income for both periods reflects higher
average invested assets in our portfolio of high quality, short duration fixed
maturity and short term investments.

    During the third quarter of 2007, the Company recorded $8.3 million of
net realized and unrealized gains compared to net realized and unrealized
gains of $10.8 million in the third quarter of 2006. As noted in our first
quarter, 2007 earnings press release, effective January 1, 2007 we early
adopted SFAS 159, "The Fair Value Option for Financial Assets and Financial
Liabilities including an amendment of FASB Statement No. 115", ("SFAS 159")
with respect to our investment portfolio. The impact is that all subsequent
changes in the fair value of our investment portfolio will be recorded as net
realized and unrealized gains (losses) in our statement of operations. For the
three months ended September 30, 2007, our net realized and unrealized gains
includes $8.1 million gain on our fixed maturity portfolio, $3.7 million gain
on our equity portfolio, $7.3 million loss on our derivative instruments, and
$3.8 million gain on other investments.

    During the nine months ended September 30, 2007, the Company recorded
$10.9 million of net realized and unrealized gains compared to net realized
and unrealized gains of $2.2 million in the same period of 2006. For the nine
months ended September 30, 2007, our net realized and unrealized gains
includes $3.1 million loss on our fixed maturity portfolio, $6.9 million gain
on our equity portfolio, and $6.4 million gain on other investments.

    Losses incurred

    Losses and loss adjustment expenses were $37.4 million for the third
quarter of 2007, representing a loss ratio of 27.0% compared to $9.7 million
and a loss ratio of 15.3% for the same quarter last year. The third quarter of
2007 includes $10.3 million with respect to flooding which impacted parts of
Southern and Central England and Wales in July. In the current quarter, the
Company did not experience any deterioration in the prior estimates for
Windstorm Kyrill, the June 2007 United Kingdom floods, and the New South Wales
(Australia) flood losses.

    Losses and loss adjustment expenses were $162.4 million for the nine
months ended September 30, 2007, representing a loss ratio of 46.2% compared
to $19.6 million and a loss ratio of 16.3% for the same period last year. In
addition to the July UK floods noted above, we incurred gross losses of $33.8
million from Windstorm Kyrill which swept across Northern Europe in January
2007, $31.0 million for United Kingdom flood losses in Northern England in
June 2007, $23.5 million for New South Wales (Australia) flood losses, and
$6.0 million for a Zenit Satellite loss in January 2007. The first nine months
of 2006 experienced light catastrophe activity.

    Expenses

    Acquisition costs and general and administrative expenses were $48.6
million for the third quarter of 2007 representing an expense ratio of 34.9%
compared to $18.6 million or 29.2% for the same quarter last year. Included in
these numbers were $2.0 million and $1.2 million for the quarters ended
September 30, 2007 and September 30, 2006, respectively, relating to the
expensing of share based equity compensation. Also included in the September
30, 2007 results is $5.0 million of acquisition costs and general and
administrative expenses relating to Island Heritage which are now included in
the Company's consolidated results since the acquisition of the controlling
interest in Island Heritage in July 2007.

    Acquisition costs and general and administrative expenses were $104.5
million for the nine months ended September 30, 2007 representing an expense
ratio of 29.7% compared to $42.9 million and 35.9% for the same period in
2006. Included in these numbers were $6.2 million and $5.5 million for the
nine month periods ended September 30, 2007 and September 30, 2006,
respectively, relating to the expensing of share based equity compensation.
Also included in the September 30, 2007 results is $5.0 million relating to
Island Heritage noted above.

    For the third quarter of 2007, the Company generated a combined ratio of
61.9%, compared to a combined ratio of 44.5% for the third quarter of 2006.
For the nine months ended September 30, 2007, the Company generated a combined
ratio of 75.9%, compared to a combined ratio of 52.2% for the same period in
2006.

    Interest expense

    Interest expense for the third quarter of 2007 was $5.9 million, compared
to $1.3 million for the same quarter in 2006. Interest expense for the nine
months ended September 30, 2007 was $12.7 million, compared to $1.3 million
for the same period in 2006. Interest expense primarily consists of interest
due and amortization of debt offering costs on our junior subordinated
deferrable interest debentures which were issued in August 2006, June 2007,
and September 2007.

    Minority interest

    From January 1, 2007, the Company consolidates Mont Fort Re ("Mont
Fort"), a segregated accounts or "cell" company registered under the Bermuda
Segregated Accounts Companies Act 2000 (as amended) in accordance with the
provisions of FASB Interpretation No. 46 (revised) Consolidation of Variable
Interest Entities. As such, the results of Mont Fort are included in the
Company's unaudited consolidated financial statements and the portions of Mont
Fort's net income and shareholders equity attributable to the preferred
shareholders are recorded in the consolidated financial statements of the
Company as minority interest.

    Included in the Company's assets as at September 30, 2007 were cash, cash
equivalents and fixed maturity investments of $167.2 million held for the sole
benefit of preferred shareholders of each specific Mont Fort cell and
available to settle the specific current and future liabilities of each cell.

    On July 3, 2007, Flagstone purchased 73,110 shares (representing a 21.4%
interest) in Island Heritage for a purchase price of $12.6 million. Island
Heritage is a Caribbean property insurer based in the Cayman Islands which
targets the property insurance market. With this acquisition, Flagstone took a
controlling interest in Island Heritage by increasing its interest to 54.6% of
the voting shares. Flagstone's share of Island Heritage's results from
operations was recorded in the Company's consolidated financial statements
under the equity method of accounting through June 30, 2007. As a result of
the acquisition of the controlling interest, the results of operations of
Island Heritage have been included in the Company's consolidated financial
statements from July 1, 2007, with the portions of Island Heritage's net
income and shareholders' equity attributable to minority shareholders recorded
as minority interest in the Company's consolidated financial statements.

    Shareholders' equity

    Shareholders' equity was $1.2 billion at September 30, 2007, compared to
$864.5 million at December 31, 2006. Diluted book value per share at September
30, 2007 was $13.30, compared to $11.94 per share at December 31, 2006.

    Declaration of quarterly dividend

    On October 26, 2007, the Board of Directors declared a quarterly dividend
of $0.04 per common share. The dividend is payable on November 15, 2007 to
shareholders of record at the close of business on October 31, 2007.

    Regulation G

    This earnings release includes diluted book value per share. This is a
non-GAAP financial measure and it has been reconciled to its most comparable
GAAP financial measure. Flagstone believes this measure to be more relevant
than comparable GAAP measures in evaluating Flagstone's financial performance.
A reconciliation of this measure to shareholders' equity is presented at the
end of this release.

    Additional information

    Flagstone will host a conference call on Thursday November 8th, 2007 at
9.30 a.m. (EST) to discuss this release. Live broadcast of the conference call
will be available through the Investor Section of Flagstone Re's website at
www.flagstonere.bm

    Flagstone Reinsurance Holdings Limited, through its operating
subsidiaries, is a global reinsurance company headquartered in Bermuda.
Flagstone Re employs a focused, technical approach to the Property
Catastrophe, Property, and Specialty reinsurance business. Flagstone Re and
Flagstone Reassurance Suisse have received "A-" financial strength ratings
from both A.M. Best and Fitch Ratings, and "A3" ratings from Moody's Investors
Service.

    The company is traded on the New York Stock Exchange under the symbol
FSR. Additional financial information and other items of interest are
available at the Company's website located at http://www.flagstonere.bm. The
Company expects to file its Form 10-Q with the Securities and Exchange
Commission on or before November 14, 2007 and urges shareholders to refer to
that document for more complete information concerning Flagstone's financial
results.

    Please refer to the September 30, 2007 Financial Supplement, which will
be posted on the Company's website at www.flagstonere.bm for more detailed
financial information.

    
    Unaudited Condensed Consolidated Statements of Operations and
     Comprehensive Income - For the three month and nine month periods
     ended September 30, 2007 and September 30, 2006 (expressed in
     thousands of U.S. dollars, except share and per share data)

                      For the Three Months Ended For the Nine Months Ended
                        Sept. 30,    Sept. 30,    Sept. 30,    Sept. 30,
                           2007         2006         2007         2006
                      ------------- ------------ ------------ ------------

    REVENUES
    Gross premiums
     written           $   123,704  $    61,914  $   512,062  $   275,981
    Reinsurance
     premiums ceded        (32,572)     (11,389)     (40,817)     (19,991)
                      ------------- ------------ ------------ ------------
    Net premiums
     written                91,132       50,525      471,245      255,990
    Change in net
     unearned premiums      47,667       12,956     (119,378)    (136,262)
                      ------------- ------------ ------------ ------------
    Net premiums
     earned                138,799       63,481      351,867      119,728
    Net investment
     income                 17,022        9,849       51,184       24,650
    Net realized and
     unrealized gains        8,298       10,827       10,911        2,206
    Other income             1,961        1,216        2,885        3,225
                      ------------- ------------ ------------ ------------
    Total revenues         166,080       85,373      416,847      149,809
                      ------------- ------------ ------------ ------------

    EXPENSES
    Loss and loss
     adjustment
     expenses               37,439        9,723      162,444       19,550
    Acquisition costs       28,795       10,946       56,238       19,044
    General and
     administrative
     expenses               19,763        7,649       48,232       23,898
    Interest expense         5,873        1,291       12,657        1,291
    Net foreign
     exchange gains         (1,842)        (419)      (3,180)      (1,744)
                      ------------- ------------ ------------ ------------
    Total expenses          90,028       29,190      276,391       62,039
                      ------------- ------------ ------------ ------------

    Income before
     income taxes,
     minority interest
     and interest in
     earnings of
     equity
     investments            76,052       56,183      140,456       87,770
    Provision for
     income tax               (229)         (78)        (351)         (78)
    Minority interest       (9,317)           -      (24,942)           -
    Interest in
     earnings of
     equity
     investments              (257)         804        1,390        1,063

                      ------------- ------------ ------------ ------------
    NET INCOME         $    66,249  $    56,909  $   116,553  $    88,755
                      ------------- ------------ ------------ ------------

    Change in net
     unrealized gains
     (losses)                    -        2,815            -         (769)
    Change in currency
     translation
     adjustment              8,310          (23)       6,293           29

                      ------------- ------------ ------------ ------------
    COMPREHENSIVE
     INCOME            $    74,559  $    59,701  $   122,846  $    88,015
                      ------------- ------------ ------------ ------------

    Weighted average
     common shares
     outstanding--
     Basic              85,413,479   71,595,793   80,816,529   69,530,742
                      ------------- ------------ ------------ ------------
    Weighted average
     common shares
     outstanding--
     Diluted            85,491,561   71,705,036   80,937,061   69,618,644
                      ------------- ------------ ------------ ------------
    Net income per
     common share
     outstanding--
     Basic             $      0.78  $      0.79  $      1.44  $      1.28
                      ------------- ------------ ------------ ------------
    Net income per
     common share
     outstanding--
     Diluted           $      0.77  $      0.79  $      1.44  $      1.27
                      ------------- ------------ ------------ ------------
    Dividends declared
     per common share  $      0.04  $         -  $      0.04  $         -
                      ------------- ------------ ------------ ------------
    

    
    Unaudited Condensed Consolidated Balance Sheets - September 30, 2007
     and December 31, 2006 (expressed in thousands of U.S. dollars)

                                                   As at         As at
                                               September 30, December 31,
                                                    2007          2006
                                               ------------- -------------

    ASSETS
    Investments:
    Fixed maturities, at fair value (Amortized
     cost: 2007 - $1,106,329; 2006 - $686,288) $   1,102,328   $  682,278
    Short term investments, at fair value
     (Cost: 2007 - $14,306; 2006 - $nil)              14,242            -
    Equity investments, at fair value (Cost:
     2007 - $22,156; 2006 - $nil)                     28,746            -
    Other investments                                289,340       74,496
                                               ------------- -------------
      Total Investments                            1,434,656      756,774
    Cash and cash equivalents                        322,768      261,352
    Reinsurance premium balances receivable          189,553       68,940
    Unearned premiums ceded                           22,491        8,224
    Accrued interest receivable                        7,534        6,331
    Receivable for investments sold                        -        3,599
    Deferred acquisition costs                        36,819       11,909
    Funds withheld                                     6,606            -
    Goodwill                                          11,556        5,624
    Other assets                                      33,704       18,659
    Due from related parties                           1,009        3,090
                                               ------------- -------------
    Total Assets                               $   2,066,696   $1,144,502
                                               ------------- -------------

    LIABILITIES
    Loss and loss adjustment expense reserves  $     161,442   $   22,516
    Unearned premiums                                252,096       98,659
    Insurance and reinsurance balances payable        22,728            -
    Payable for investments purchased                  8,248        9,531
    Long term debt                                   264,469      137,159
    Other liabilities                                 26,076       11,866
    Due to related parties                                 -          252
                                               ------------- -------------
    Total Liabilities                                735,059      279,983
                                               ------------- -------------

                                               ------------- -------------
    Minority Interest                                172,704            -
                                               ------------- -------------

    SHAREHOLDERS' EQUITY
    Common voting shares, 150,000,000
     authorized, $0.01 par value, issued and
     outstanding (2007 - 85,297,891; 2006 -
     71,547,891)                                         853          715
    Additional paid-in capital                       903,220      728,378
    Accumulated other comprehensive income
     (loss)                                            5,774       (4,528)
    Retained earnings                                249,086      139,954
                                               ------------- -------------
    Total Shareholders' Equity                     1,158,933      864,519
                                               ------------- -------------

                                               ------------- -------------
    Total Liabilities, Minority Interest and
     Shareholders' Equity                      $   2,066,696   $1,144,502
                                               ------------- -------------
    

    Cautionary Statement under Safe Harbor Statement under the Private
Securities Litigation Reform Act of 1995.

    This report may include forward-looking statements which reflect our
current views with respect to future events and financial performance.
Statements which include the words "expect," "intend," "plan," "believe,"
"project," "anticipate," "will" and similar statements of a future or
forward-looking nature identify forward-looking statements for purposes of the
U.S. federal securities laws or otherwise.

    These statements include forward-looking statements both with respect to
us specifically and our industry in general. These statements are based on
certain assumptions and analyses made by us in light of our experience and
perception of historical trends, current conditions and expected future
developments, as well as other factors believed to be appropriate in the
circumstances. However, whether actual results and developments will conform
to our expectations and predictions is subject to a number of risks and
uncertainties that could cause actual results to differ materially from
expectations, including, but not limited to, the following:

    -- the risks discussed on our Form S-1 filed with the SEC on March 30,
2007 beginning on page 12

    -- cyclicality of demand and pricing in the reinsurance market

    -- unpredictability and severity of catastrophic events

    -- adequacy of our risk management and loss limitation methods

    -- adequacy of our loss reserves

    -- our limited operating history

    -- dependence on key personnel

    -- dependence on the policies, procedures and expertise of ceding
companies

    -- potential loss of business from one or more major reinsurance brokers

    -- potential for financial strength rating downgrade

    -- risks inherent to our acquisition strategy

    -- highly competitive business environment and

    -- other factors, most of which are beyond our control.

    Accordingly, all of the forward-looking statements made in this report
are qualified by these cautionary statements, and there can be no assurance
that the actual results or developments anticipated by us will be realized or,
even if substantially realized, that they will have the expected consequences
to, or effects on, us or our business or operations. We undertake no
obligation to publicly update or review any forward-looking statement, whether
as a result of new information, future developments or otherwise. All
subsequent written and oral forward-looking statements attributable to us or
individuals acting on our behalf are expressly qualified in their entirety by
this paragraph. You should specifically consider the factors identified in our
Form S-1 filed with the SEC on March 30, 2007 which could cause actual results
to differ before making an investment decision.

    Non-GAAP Financial Measures

    In addition to the GAAP financial measures set forth in this Press
Release, we have presented "basic and diluted book value per share" which are
non GAAP financial measures. We have included the diluted book value per share
measure because it takes into account the effect of dilutive securities and
therefore, we believe that this is a better measure of calculating shareholder
returns than basic book value per share.

    Basic book value per share is defined as total shareholders' equity
divided by the number of common shares outstanding at the end of the period,
giving no effect to dilutive securities. Diluted book value per share is
defined as total shareholders' equity divided by the number of common shares
and common share equivalents outstanding at the end of the period including
all potentially dilutive securities such as the Warrant, PSUs and RSUs. When
the effect of securities would be anti-dilutive, these securities are excluded
from the calculation of diluted book value per share. The Warrant was
anti-dilutive and was excluded from the calculation of diluted book value per
share as at September 30, 2007 and December 31, 2006.

    Investors are cautioned not to place undue reliance on this non-GAAP
measure in assessing the Company's overall financial performance.

    
    Book Value per Share (Unaudited)

                                                 As at          As at
                                             September 30,  December 31,
                                                  2007           2006
                                             -------------- --------------
                                             ($ in thousands, except share
                                                  and per share data)


    Shareholders' Equity                     $    1,158,933 $      864,519

    Potential net proceeds from assumed:
      Exercise of PSU (1)                                 -              -
      Exercise of RSU (1)                                 -              -
      Conversion of warrant - ($14 strike
       price) (2)                                         -              -
                                             -------------- --------------
    Diluted Shareholders' Equity             $    1,158,933 $      864,519
                                             -------------- --------------


    Dividends declared and paid              $        3,412 $            -
                                             -------------- --------------


    Common shares outstanding - end of
     period                                      85,297,891     71,547,891
    Potential shares to be issued:
      PSUs outstanding                            1,538,000        713,000
      RSUs outstanding                              326,538        117,727
      Conversion of warrant - ($14 strike
       price) (2)                                         -              -
                                             -------------- --------------
    Common Shares Outstanding - Diluted          87,162,429     72,378,618
                                             -------------- --------------

    Basic book value per share               $        13.59 $        12.08
                                             -------------- --------------

    Diluted book value per share             $        13.30 $        11.94
                                             -------------- --------------


    (1) No proceeds due when exercised
    (2) Below strike price - not dilutive
    




For further information:

For further information: Flagstone Reinsurance Holdings Limited,
Hamilton Brenton Slade, 441-278-4303

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FLAGSTONE REINSURANCE HOLDINGS LIMITED

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