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Flagstone Re Enters Definitive Agreement With BF&M Limited For The Sale Of Island Heritage Insurance

Stocks in this article: FSR

Flagstone Reinsurance Holdings, S.A. (NYSE: FSR) (the “Company”) today announced that it has entered into a definitive share purchase agreement with BF&M Limited (“BF&M”), and certain other parties, under which BF&M will acquire the parent of Island Heritage for approximately $68 million in cash. Flagstone currently owns an approximate 60% interest in Island Heritage and expects to receive about $40.8 million in cash from the sale.

David Brown, Flagstone’s Chief Executive Officer, stated, “The sale of Island Heritage, coupled with the planned divestment of our Lloyd’s operations, further enables us to streamline our core businesses as we continue to execute on our strategic path forward. Once these transactions are complete, we can renew our focus on leveraging our existing strengths in order to deliver enhanced value for our shareholders.”

Flagstone’s underwriting strategy will continue to focus on its successful property and property catastrophe units. Flagstone is maintaining its current investment strategy, which focuses on significant liquidity and security, to provide a stable capital base with which to underwrite.

The transaction is expected to be completed before the end of the second quarter of 2012, subject to the satisfaction of customary regulatory approvals and certain other customary closing conditions. The price will be subject to customary purchase price adjustments.

Aon Benfield Securities, Inc. is acting as financial advisor, and Appleby is acting as legal advisor to Flagstone in connection with the Island Heritage transaction.

About Flagstone Reinsurance Holdings, S.A.

Flagstone Reinsurance Holdings, S.A., through its operating subsidiaries, is a global reinsurance company that employs a focused and technical approach to the Property Catastrophe, Property, and Specialty reinsurance businesses.

The Company is traded on the New York Stock Exchange under the symbol “FSR” and the Bermuda Stock Exchange under the symbol “FSR BH”. Additional financial information and other items of interest are available at the Company’s website located at http://www.flagstonere.com.

Cautionary Statement Regarding Forward-Looking Statements

This report may contain, and the Company may from time to time make, written or oral forward-looking statements within the meaning of the U.S. federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties and other factors, many of which are outside the Company’s control, which could cause actual results to differ materially from such statements. In particular, statements using words such as “may”, “should”, “will”, “enable”, “estimate”, “expect”, “anticipate”, “intend”, “consider”, “believe”, “predict”, “potential”, or words of similar import generally involve forward-looking statements.

Important events and uncertainties that could cause the actual results to differ include, but are not necessarily limited to: the satisfaction of the conditions to the Island Heritage transaction and other risks related to the completion of such transaction and actions related thereto; the ability of the Company and BF&M to complete the transaction described above on the anticipated terms and time frame, including the ability to obtain necessary regulatory approvals; the occurrence of any event, change or other circumstances that could give rise to the termination of the definitive agreement; the failure of BF&M to obtain the necessary financing arrangements to consummate the transaction; the amount and timing of costs, fees, expenses and charges related to the transaction described above and other realignment initiatives we are currently undertaking; the ongoing impact on our business of our net loss in 2011 and our inability to return to profitability in a timely manner, if at all; the failure to reach an agreement on and consummate the divestiture of our Lloyd’s business on acceptable terms or at all, and the timing of any such divestiture; the possibility that the benefits anticipated from the transaction described above and other realignment initiatives we are currently undertaking will not be fully realized in the timeframe anticipated, if at all; the failure to successfully implement our business strategy despite the completion of the transaction described above and other realignment initiatives we are currently undertaking; cancellation of our reinsurance contracts by cedents; market conditions affecting our common share price; the possibility that pricing changes in our industry may make it difficult or impossible for us to effectively compete or produce attractive returns; the possibility of severe or unanticipated losses from natural or man-made catastrophes; the effectiveness of our loss limitation methods; our dependence on principal employees; the cyclical nature of the insurance and reinsurance business; the levels of new and renewal business achieved and the premium environment; opportunities to increase writings in our core property and specialty reinsurance and insurance lines of business and in specific areas of the casualty reinsurance market; the sensitivity of our business to financial strength ratings established by independent rating agencies; the impact of the agencies’ ongoing review of our financial strength ratings and the consequences to our business of this review and sustained negative outlook or any downgrade; our ability to raise capital on favorable terms or at all; the estimates reported by cedents and brokers on pro-rata contracts and certain excess of loss contracts in which the deposit premium is not specified; the inherent uncertainties of establishing reserves for loss and loss adjustment expenses, and our reliance on industry loss estimates and those generated by modeling techniques; unanticipated adjustments to premium estimates; changes in the availability, cost or quality of reinsurance or retrocessional coverage; our exposure to many different counterparties in the financial service industry, and the related credit risk of counterparty default; changes in general economic conditions; changes in governmental regulation or tax laws in the jurisdictions where we conduct business; our need for financial flexibility to maintain our current level of business; the amount and timing of reinsurance recoverables and reimbursements we actually receive from our reinsurers; the overall level of competition, and the related demand and supply and premium dynamics in our markets relating to growing capital levels in the insurance and reinsurance industries; the investment environment; declining demand due to increased retentions by cedents and other factors; our ability to continue to implement our expense reduction initiatives to the extent and in the timeframe anticipated; the impact of Eurozone instability and terrorist activities on the economy; and rating agency policies and practices, particularly related to the duration a company may remain on negative outlook without further ratings action.

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