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Flagstone Re Reports Second Quarter 2012 Results

Flagstone Reinsurance Holdings, S.A. (NYSE: FSR) today announced second quarter 2012 basic book value per share of $11.73 and diluted book value per share of $11.52, up 1.2% and 1.3%, respectively, for the quarter (percentages inclusive of dividends). Net income attributable to Flagstone’s common shareholders for the three and six months ended June 30, 2012, was $13.5 million and $52.7 million, or $0.19 and $0.74 earnings per diluted share, respectively, compared to a net loss of $20.2 million and $181.4 million, or $0.29 and $2.60 loss per diluted share, respectively, for the three and six months ended June 30, 2011. Net income from continuing operations for the three and six months ended June 30, 2012, was $12.3 million and $40.2 million, or $0.17 and $0.55 earnings per diluted share, respectively, compared to net loss from continuing operations of $33.0 million and $181.1 million, or $0.49 or $2.62 loss per diluted share, respectively, for the three and six months ended June 30, 2011.

As previously announced on April 2, 2012, and April 3, 2012, the Company entered into definitive agreements to divest its former Island Heritage and Lloyd’s reportable segments, respectively. The Island Heritage transaction was completed on April 5, 2012, as previously announced. The Lloyd’s transaction is expected to be completed during the third quarter of 2012 following receipt on final approvals from Lloyd’s.

Except as explicitly described as held for sale or as discontinued operations, and unless otherwise noted, all discussions and amounts presented herein relate only to Flagstone’s continuing operations. All prior years presented have been reclassified to conform to this new presentation.

Operating highlights of our continuing operations for the three and six months ended June 30, 2012 and 2011 included the following:
    For the three months ended June 30,     For the six months ended June 30,
2012     2011     % Change 2012     2011   % Change
(Expressed in millions of U.S. dollars, except percentages)
Operating income (loss) (1) $ 8.6 $ (11.6 ) 174.1 % $ 16.2 $ (160.3 ) 110.1 %
Gross premiums written $ 171.2 $ 264.1 (35.2 ) % $ 341.4 $ 616.8 (44.6 ) %
Net premiums earned $ 102.5 $ 118.6 (13.6 ) % $ 216.2 $ 319.7 (32.4 ) %
Combined ratio 94.1 % 119.5 % (25.4 ) % 95.9 % 156.1 % (60.2 ) %
Total return on investments 0.5 % 0.3 % 0.2 % 2.4 % 1.3 % 1.1 %

(1) Operating income (loss), a non-GAAP financial measure, is defined as income (loss) from continuing operations adjusted for net realized and unrealized gains (losses) - investments, net realized and unrealized gains (losses) - other, net foreign exchange losses (gains), and non-recurring items. A reconciliation of this measure to income (loss) from continuing operations is presented at the end of this release.

David Brown, Flagstone’s Chief Executive Officer, stated, “We are pleased with our second quarter results as we continue to benefit from the strategic shift in our business model as Flagstone becomes a more focused and efficient underwriter. Evidence of the effectiveness of this strategy and its benefits could be seen this quarter with reduced frequency and attritional losses, coupled with our ongoing expense saving initiatives, which drove positive underwriting performance despite significant tornado, wind, and wildfire industry losses in the United States during the quarter. Flagstone’s improved performance in the second quarter also reflects the benefits of attractive rates in our core business, which partially offset the reduction in income as we continue to reposition our portfolio. Furthermore, our mid-year underwriting renewals were strong and are a testament to our value in the marketplace and demonstrate our commitment to our clients.”

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