Flagstone Reports $59.5M Third Quarter Loss
Flagstone Re — based in Luxembourg but with its executive offices and prime underwriting platform in Bermuda — has swung to a net loss of $59.5 million in the third quarter from a net profit of $37.3 million for the same quarter last year.
The reinsurer’s net premiums written during the period fell 23.3% year on year to $122.2 million, from $159.38 million.
For the third quarter, Flagstone produced a loss ratio of 94.6% and a combined ratio of 136.5%. This resulted in a decrease in diluted book value of 7.1% during the third quarter.
Flagstone’s North American portfolio produced competitive results despite severe weather activity in the Midwest United States and Hurricane Irene impacting the Northeast.
The quarter was negatively impacted by upward revisions from catastrophes occurring in the first quarter as well as some upwards movement from the US weather in the second quarter.
“2011 continues to be the worst year on record for industry losses resulting from catastrophes, and our results continue to be meaningfully impacted by a number of significant events,” said David Brown, Flagstone’s CEO. “Despite these losses our balance sheet remains stable, with more than $1 billion of underwriting capital, and our rating agency capital adequacy measures continue to be in excess of our normal operating buffer.”
As previously announced on October 24, 2011, Flagstone is undertaking a number of strategic initiatives designed to realign the company’s strategy and core capabilities.
Through these initiatives, Flagstone intends to refocus its underwriting strategy to leverage its existing strengths and streamline its corporate structure to reduce expenses and enhance capital levels.
Going forward, the company intends to concentrate primarily on its property, property catastrophe and its highest margin short-tail specialty lines of reinsurance businesses, while adjusting its geographic diversification in order to decrease the threat of frequency risk.
As a result, Flagstone has commenced a formal process to divest its ownership positions in its Lloyd’s and Island Heritage operations.
The company expects that these divestitures will lower its gross written premium by approximately $300 million per year, without any impact on expected return on equity, as well as produce significant expense savings through reduced infrastructure and the consequent requirement for operational support.
The company believes these measures, as well as the additional structural changes announced on October 24, 2011, will result in a projected annual run rate of $75 million of general and administrative expenses starting by 2013, a savings of $40 million per year from current levels.
Mr. Brown continued, “After careful and thoughtful consideration over the last 18 months, we have recently announced some key strategic decisions designed to realign our strategy and core capabilities.
“We believe that refocusing our efforts will result in enhanced capital levels for rating agencies and a higher quality, more profitable book of business. By substantially reducing expenses and divesting some of our non-core assets, we are unlocking significant amounts of capital and resources.
“Through this refocus, we are returning Flagstone to a more nimble, cost-effective and opportunistic structure, without impact on our overall return on equity. We have long prided ourselves on providing some of the fastest and most technical underwriting service standards in the business, and we look forward to delivering improved results for our clients and shareholders by continuing with our strengths and serving our core markets.”
At September 30, 2011, Flagstone’s shareholders’ equity was $0.9 billion and diluted book value per common share was $12.11.
The company, through its operating subsidiaries, is a global reinsurance and insurance company that employs a focused and technical approach to the property, property catastrophe, and short-tail specialty and casualty insurance and reinsurance businesses.
Flagstone is traded on the New York Stock Exchange and the Bermuda Stock Exchange.
