Flagstone Re Reports Diluted Book Value Per Share of $12.46 for End of Second Quarter 2007



    HAMILTON, BERMUDA, August 9 /CNW/ - Flagstone Reinsurance Holdings
Limited (NYSE:   FSR) announced today that their second quarter of 2007 ended
with a diluted book value per share of $12.46, up 1.2% for the quarter. Net
income available to common shareholders for the quarter ended June 30, 2007 of
$14.7 million, or $0.17 per diluted share, compared to $26.1 million, or $0.36
per diluted share, for the quarter ended June 30, 2006. Net income for the six
months ended June 30, 2007 was $50.3 million, or $0.64 per diluted share,
compared to $31.8 million, or $0.47 per diluted share, for the corresponding
period of 2006.

    Chairman, Mark Byrne noted: "Organizationally, we had a productive
quarter, and many seasoned executives joined Flagstone around the world.
Progress on our many systems and technology initiatives continues apace.
Furthermore, we have launched new offices covering the MENA region from Dubai,
and the Latin American region from San Juan Puerto Rico. Our globally
diversified book of business means that when there are significant losses in
non peak zones, our portfolio will experience losses which a peak-zone
strategy might avoid. Naturally we would have preferred to have a stronger Q2
2007 from a returns perspective, but we view the moderate size of the losses
relative to our exposures in the UK Wind and Australian zones, to be a
satisfactory demonstration of our risk management. 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 16.9%, which is near 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."

    CEO David Brown said, "We continue to be pleased with the quality of
business we are seeing and increased our volumes significantly over the same
period last year. Our gross premiums written are up 81% for the first half of
the year as we mature our relationships and deploy the capital raised in our
IPO and through our recent debt offering. As I noted last quarter, the UK is
one of our largest exposure zones and consequently we were impacted by the
floods in the UK at the end of this quarter. This, together with flood losses
in Australia, produced a disappointing result viewed on a quarterly basis.
However, this is in the nature of the volatile business we underwrite and we
continue to be pleased with the franchise we are building for the long term."

    
    Summary of unaudited consolidated financial data for the periods is as
     follows:

                                Three Months Ended     Six Months Ended
                                June 30,   June 30,   June 30,   June 30,
                                  2007       2006       2007       2006
                               -------------------------------------------
                               (in thousands, except per share amounts and
                                                 ratios)

    Gross Premiums Written     $  181,345  $125,453  $  388,358  $214,067
    Net Premiums Written       $  181,345  $118,739  $  380,113  $205,465
    Net Premiums Earned        $  111,842  $ 37,275  $  213,068  $ 56,247
    Net Investment Income      $   20,531  $  8,173  $   34,162  $ 14,801
    Net income                 $   14,694  $ 26,095  $   50,304  $ 31,846
    Total Shareholders' Equity $1,085,845  $742,153  $1,085,845  $742,153
    Combined Ratio                   94.6%     46.3%       84.9%     60.8%
    Basis Earnings per Share   $     0.17  $   0.36  $     0.64  $   0.47
    Diluted Earnings per Share $     0.17  $   0.36  $     0.64  $   0.47
    Basic Book Value per Share $    12.73  $  10.37  $    12.73  $  10.37
    Fully Diluted Book Value
     per Share                 $    12.46  $  10.27  $    12.46  $  10.27
    Growth in Fully Diluted
     Book Value per Share             1.2%      2.9%        4.3%      4.2%
    

    Please note that our diluted earnings per share for the quarter ended
June 30, 2007 does not contain the effect of:

    (1) The warrant conversion as this would be anti-dilutive for GAAP
purposes.

    (2) The PSU conversion until the end of the performance period, when the
number of shares issuable under the PSU Plan will be known. There are
currently 1,538,000 PSU's outstanding under the PSU plan.

    Diluted book value per share is a non-GAAP financial measure. A
reconciliation of this measure to shareholders equity is presented at the end
of this release.

    Results of Operations

    Premiums

    Gross premiums written for the second quarter of 2007 were $181.3
million, compared to $125.5 million for the same quarter of 2006, an increase
of 44.6% from the prior quarter. Gross premiums written for the six months
ended June 30, 2007 were $388.4 million, compared to $214.1 million for the
same period in 2006, an increase of 81.4% from the prior period.

    The increase in gross premiums written for both periods was primarily due
to 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 since we commenced operations on December 20, 2005.

    The gross premiums written in second quarter 2007 include $144.4 million
for property catastrophe, $26.3 million for other property and $10.6 million
for the specialty book compared to $99.8 million, $21.6 million and $4.1
million, respectively, for the same quarter in 2006.

    The gross premiums written for the six months ended June 30, 2007 include
$302.8 million for property catastrophe, $50.9 million for other property and
$34.7 million for the specialty book compared to $160.3 million, $41.8 million
and $12.0 million, respectively, for the same period in 2006.

    Net premiums earned were $111.8 million for the second quarter of 2007
compared to $37.3 million for the same quarter of 2006. Net premiums earned
for the six months ended June 30, 2007 were $213.1 million compared to $56.2
million for the same period of 2006. Because Flagstone only began writing
business in January 2006, and premium volumes are continuing to increase,
earned premiums lag noticeably behind written premiums. This will continue to
be the case until the level of net premiums written stabilizes at a reasonably
constant level year on year.

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

    Net investment income for the second quarter of 2007 was $20.5 million,
compared to $8.2 million for the same quarter in 2006. Net investment income
for the six months ended June 30, 2007 was $34.2 million, compared to $14.8
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 and the increase in amortization income on
our Treasury Inflation Protected Securities ("TIPS").

    During the second quarter of 2007, the Company recorded $1.9 million of
net realized and unrealized losses compared to net realized and unrealized
losses of $5.5 million in the second 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. Our net
realized and unrealized loss includes $8.6 million loss for the three months
ended June 30, 2007 which primarily resulted from the change in fair value of
our fixed maturity and equity portfolio during the period due to the impact of
rising interest rates offset by positive performing equity markets.

    During the six months ended June 30, 2007, the Company recorded $2.6
million of net realized and unrealized gains compared to net realized and
unrealized losses of $8.6 million in the same period of 2006. Our net realized
and unrealized loss includes $5.3 million loss for the six months ended June
30, 2007 which primarily resulted from the change in fair value of our fixed
maturity and equity portfolio during the period due to the impact of rising
interest rates offset by positive performing equity markets.

    Losses incurred

    Losses and loss adjustment expenses were $77.3 million for the second
quarter of 2007, representing a loss ratio of 69.1% compared to $3.6 million
and a loss ratio of 9.7% for the same quarter last year. The second quarter of
2007 included $31.0 million with respect to flooding which impacted parts of
Northern England in June of this year, $23.5 million with respect to the storm
and subsequent flooding which affected parts of New South Wales, Australia in
early June 2007, and $4.5 million with respect to Cyclone Gonu (Oman) in June
2007. These three events added 52.8% to the second quarter loss ratio.
Complexity resulting from the ongoing floods in several areas of England
introduces additional uncertainty to the normal difficult process of
estimating catastrophic losses. The resulting impact on claims adjusting
(including the effect of demand surge on the cost of building materials, labor
and additional living expenses) is likely to cause delays to the timing with
which we are notified of loss estimates by ceding companies.

    Losses and loss adjustment expenses were $125.0 million for the six
months ended June 30, 2007, representing a loss ratio of 58.7% compared to
$9.8 million and a loss ratio of 17.5% for the same period last year. In
addition to the events noted above, we incurred gross losses of $33.8 million
from Windstorm Kyrill which swept across Northern Europe in January 2007, and
$6.0 million for a Zenit Satellite loss in January 2007. The first half of the
year of 2006 experienced light catastrophe activity.

    With regard to the July UK flood losses we are currently assessing its
impact on our portfolio and it is too early to comment on an expected loss
range.

    Expenses

    Acquisition costs and general and administrative expenses were $28.5
million for the second quarter of 2007 representing an expense ratio of 25.5%
compared to $13.7 million and 36.6% for the same quarter last year. Included
in these numbers were $2.6 million and $0.6 million for the quarters ended
June 30, 2007 and June 30, 2006, respectively, relating to the expensing of
share based equity compensation. The ratio for the second quarter of 2006 was
high due to the fact that the earned premiums only reflected two quarters of
premium writings.

    Acquisition costs and general and administrative expenses were $55.9
million for the six months ended June 30, 2007 representing an expense ratio
of 26.2% compared to $24.3 million and 43.3% for the same period in 2006.
Included in these numbers were $4.2 million and $4.3 million for the six month
periods ended June 30, 2007 and June 30, 2006, respectively, relating to the
expensing of share based equity compensation. The ratio for the 2006 was high
due to the fact that the earned premiums only reflected two quarters of
premium writings.

    For the second quarter of 2007, the Company generated a combined ratio of
94.6%, compared to a combined ratio of 46.3% for the second quarter of 2006.
For the six months ended June 30, 2007, the Company generated a combined ratio
of 84.9%, compared to a combined ratio of 60.8% for the same period in 2006.

    Interest expense

    Interest expense for the second quarter of 2007 was $3.5 million,
compared to $nil for the same quarter in 2006. Interest expense for the six
months ended June 30, 2007 was $6.8 million, compared to $nil 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 on August 23, 2006, June 8, 2007, and
June 28, 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 June 30, 2007 were cash, cash
equivalents and fixed maturity investments of $172.2 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.

    Shareholders' equity

    Shareholders' equity was $1.086 billion at June 30, 2007, compared to
$864.5 million at December 31, 2006. Diluted book value per share at June 30,
2007 was $12.46, compared to $11.94 per common share at December 31, 2006.

    Declaration of quarterly dividend

    On July 20, 2007, the Board of Directors declared a quarterly dividend of
$0.04 per common share. The dividend is payable on August 15, 2007 to
shareholders of record at the close of business on July 31, 2007.

    Island Heritage

    On July 3, 2007, Flagstone purchased 73,110 shares (representing a 21.4%
interest) in Island Heritage Holdings Company ("Island Heritage") for a
purchase price of approximately $12.4 million. With this acquisition,
Flagstone took a controlling interest in Island Heritage by increasing its
interest to 54.6% of the voting shares. As a result of the acquisition of the
controlling interest, the results of operations of Island Heritage will be
included in the Company's consolidated financial statements from July 1, 2007,
with the portions of Island Heritage's net income and shareholder's equity
attributable to minority shareholders recorded as minority interest in the
Company's consolidated financial statements.

    Following the acquisition, the Company's representation on Island
Heritage's board and the close working relationship with its management will
allow Flagstone to promote and support best practices in the underwriting of
Island Heritage's underlying business and consequently enhance the quality of
data available to Flagstone to underwrite the reinsurance of such business.

    Mont Gele

    On July 26th, Flagstone entered into a retrocessional reinsurance
agreement with Mont Gele Re Ltd. ("Mont Gele"), a newly-formed Cayman
reinsurance company. Mont Gele is a separate legal entity in which Flagstone
has no equity investment, management, board interests or related party
relationships. Under this agreement Mont Gele assumes an excess of loss
agreement expiring on June 30, 2009. Mont Gele is required to contribute funds
into a trust for the benefit of Flagstone equal to the protection provided
under the excess of loss agreement.

    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 August 9th, 2007 at
9.30a.m. (EDT) 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 formed and 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 August 14, 2007 and urges shareholders to refer to
that document for more complete information concerning Flagstone's financial
results.

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

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

    
                          Three Months Ended         Six Months Ended
                         June 30,     June 30,     June 30,     June 30,
                           2007         2006         2007         2006
                       ------------ ------------ ------------ ------------

    REVENUES
    Gross premiums
     written           $   181,345  $   125,453  $   388,358  $   214,067
    Reinsurance
     premiums ceded              -       (6,714)      (8,245)      (8,602)
                       ------------ ------------ ------------ ------------
    Net premiums
     written               181,345      118,739      380,113      205,465
    Change in net
     unearned premiums     (69,503)     (81,464)    (167,045)    (149,218)
                       ------------ ------------ ------------ ------------
    Net premiums earned    111,842       37,275      213,068       56,247
    Net investment
     income                 20,531        8,173       34,162       14,801
    Net realized and
     unrealized gains
     (losses)               (1,901)      (5,526)       2,613       (8,621)
    Other income               251        2,009          924        2,009
                       ------------ ------------ ------------ ------------
    Total revenues         130,723       41,931      250,767       64,436
                       ------------ ------------ ------------ ------------

    EXPENSES
    Loss and loss
     adjustment
     expenses               77,257        3,609      125,005        9,827
    Acquisition costs       14,725        5,253       27,443        8,098
    General and
     administrative
     expenses               13,800        8,399       28,469       16,249
    Interest expense         3,520            -        6,784            -
    Net foreign
     exchange gains            (56)      (1,166)      (1,338)      (1,325)
                       ------------ ------------ ------------ ------------
    Total expenses         109,246       16,095      186,363       32,849
                       ------------ ------------ ------------ ------------
    Income before
     income taxes,
     minority interest,
     and interest in
     earnings of equity
     investments            21,477       25,836       64,404       31,587
    Provision for
     income tax                (77)           -         (122)           -
    Minority interest       (7,892)           -      (15,625)           -
    Interest in
     earnings of equity
     investments             1,186          259        1,647          259

                       ------------ ------------ ------------ ------------
    NET INCOME         $    14,694  $    26,095  $    50,304  $    31,846
                       ------------ ------------ ------------ ------------

    Change in net
     unrealized losses           -       (2,603)           -       (3,584)
    Change in currency
     translation
     adjustment             (1,741)          52       (2,017)          52

                       ------------ ------------ ------------ ------------
    COMPREHENSIVE
     INCOME            $    12,953  $    23,544  $    48,287  $    28,314
                       ------------ ------------ ------------ ------------


    Weighted average
     common shares
     outstanding--Basic 85,139,757   71,547,891   78,479,958   68,481,102
                       ------------ ------------ ------------ ------------
    Weighted average
     common shares
     outstanding--
     Diluted            85,198,147   71,547,891   78,529,631   68,481,102
                       ------------ ------------ ------------ ------------
    Net income per
     common share
     outstanding--Basic$      0.17  $      0.36  $      0.64  $      0.47
                       ------------ ------------ ------------ ------------
    Net income per
     common share
     outstanding--
     Diluted           $      0.17  $      0.36  $      0.64  $      0.47
                       ------------ ------------ ------------ ------------
    

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

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

    ASSETS
    Investments:
    Fixed maturities, at fair value
     (Amortized cost: 2007 - $992,567; 2006
     - $686,288)                           $    978,660  $        682,278
    Short term investments, at fair value
     (Cost: 2007 - $25,683; 2006 - $nil)         25,583                 -
    Equity investments, at fair value
     (Cost: 2007 - $25,171; 2006 - $nil)         28,766                 -
    Other investments                           157,438            74,496
                                           ------------- -----------------
    Total Investments                         1,190,447           756,774
    Cash and cash equivalents                   422,045           261,352
    Reinsurance premium balances receivable     220,229            68,940
    Unearned premiums ceded                       4,211             8,224
    Accrued interest receivable                   7,719             6,331
    Receivable for investments sold                   -             3,599
    Deferred acquisition costs                   34,186            11,909
    Funds withheld                                5,138                 -
    Goodwill                                      6,602             5,624
    Other assets                                 17,580            18,659
    Due from related parties                      2,291             3,090
                                           ------------- -----------------
    Total Assets                           $  1,910,448  $      1,144,502
                                           ------------- -----------------

    LIABILITIES
    Loss and loss adjustment expense
     reserves                              $    135,143  $         22,516
    Unearned premiums                           269,020            98,659
    Insurance and reinsurance balances
     payable                                        883                 -
    Payable for investments purchased             1,201             9,531
    Long term debt                              238,290           137,159
    Other liabilities                            17,164            11,866
    Due to related parties                        1,283               252
                                           ------------- -----------------
    Total Liabilities                           662,984           279,983
                                           ------------- -----------------

                                           ------------- -----------------
    Minority Interest                           161,619                 -
                                           ------------- -----------------

    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                  901,279           728,378
    Accumulated other comprehensive loss         (2,536)           (4,528)
    Retained earnings                           186,249           139,954
                                           ------------- -----------------
    Total Shareholders' Equity                1,085,845           864,519
                                           ------------- -----------------

                                           ------------- -----------------
    Total Liabilities, Minority Interest
     and Shareholders' Equity              $  1,910,448  $      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 "diluted book value per common share" which is a
non-GAAP financial measure. We have included this 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.

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


     Shareholders' Equity             $       1,085,845 $          864,519
     Potential net proceeds from
      assumed:
       Exercise of PSU (1)                                               -
       Exercise of RSU (1)                                               -
       Conversion of warrants - ($14
        strike price) (2)                             -                  -
                                      ----------------- ------------------
     Diluted Shareholders' Equity     $       1,085,845 $          864,519
                                      ----------------- ------------------


     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 warrants - ($14
        strike price) (2)                             -                  -
                                      ----------------- ------------------
     Common Shares Outstanding -
      Diluted                                87,162,429         72,378,618
                                      ----------------- ------------------


     Basic book value per share       $           12.73 $            12.08
                                      ----------------- ------------------


     Diluted book value per share     $           12.46 $            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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