Flagstone Reinsurance Holdings, S.A. - FORM 8-K - EX-99.2 - FINANCIAL SUPPLEMENT

Attached files

file	filename
8-K - FORM 8K COVER - Flagstone Reinsurance Holdings, S.A.	form8k.htm
EX-99.1 - PRESS RELEASE - Flagstone Reinsurance Holdings, S.A.	exhibit991.htm

Exhibit 99.2

Flagstone Reinsurance Holdings, S.A.

INVESTOR FINANCIAL SUPPLEMENT

FIRST QUARTER 2011

Flagstone Reinsurance Holdings, S.A.

37 Val St André, L-1128

Luxembourg

Grand Duchy of Luxembourg

Contact Information:

Brenton Slade

Chief Marketing Officer

+352 273 515 15

Website Information:

www.flagstonere.com

This report is for informational purposes only. It should be read in conjunction with

the documents that we file with the Securities and Exchange Commission ("SEC")

pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934.

FLAGSTONE REINSURANCE HOLDINGS, S.A.

FINANCIAL SUPPLEMENT TABLE OF CONTENTS

					Page(s)
Basis of Presentation					1
Cautionary Statement Regarding Forward-Looking Statements					2
Regulation G - Non-GAAP Financial Measures					3
	I.	Financial Highlights			4
	II.	Income Statements
			a.	Consolidated Statements of (Loss) Income - Quarterly	5
			b.	Segment Reporting	6
			c.	Gross Premiums Written by Line of Business and Geographic Area of Risk	7
	III.	Consolidated Balance Sheets			8
	IV.	Investment Portfolio Composition			9
	V.	Loss Reserve - Paid to Incurred Analysis			10
	VI.	Share Analysis
			a.	Capitalization	11
			b.	Earnings Per Common Share Information - As Reported	12
			c.	Basic and Diluted Book Value Per Common Share Analysis	13
	VII.	Mont Fort Consolidation
			a.	Balance Sheet Consolidation	14
			b.	Income Statement Consolidation	15
	VIII.	Non-GAAP Financial Measure Reconciliation			16

FLAGSTONE REINSURANCE HOLDINGS, S.A.

BASIS OF PRESENTATION

DEFINITIONS AND PRESENTATION

·	Unless otherwise noted, all data is in thousands, except for share amounts, per share amounts and percentages.

·	The debt to capitalization ratio is an indication of the Company’s leverage. It is calculated by dividing the Company’s long term debt by the total capital. Total capital represents the sum of Flagstone shareholders’ equity plus long term debt.

·	N/A - means not applicable.

In presenting the Company’s results, management has included and discussed certain “non-GAAP” financial measures, as such term is defined in Regulation G promulgated by the SEC. Management believes that these non-GAAP measures, which may be defined differently by other companies, better explain the Company’s results of operations in a manner that allows for a more complete understanding of the underlying trends in the Company’s business. However, these measures should not be viewed as a substitute for those determined in accordance with U.S. GAAP. The reconciliation of such non-GAAP financial measures to their respective most directly comparable U.S. GAAP financial measures in accordance with Regulation G is included in this financial supplement.

FLAGSTONE REINSURANCE HOLDINGS, S.A.

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, that could cause actual results to differ materially from such statements. In particular, statements using words such as “may”, “should”, “estimate”, “expect”, “anticipate”, “intend”, “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: market conditions affecting our common share price; 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; 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; 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; 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 dynamics in our markets relating to growing capital levels in the insurance and reinsurance industries; declining demand due to increased retentions by cedents and other factors; the impact of terrorist activities on the economy; and rating agency policies and practices.

On March 20, 2011, Moody’s Investors Service placed the financial strength rating of the Company and its principal subsidiary, Flagstone Suisse, under review. On March 31, 2011, Fitch Ratings re-affirmed the A- insurer financial strength of Flagstone Suisse and revised its outlook to negative. On April 12, 2011, A.M. Best Co. re-affirmed the A- financial strength rating of Flagstone Suisse and revised its outlook to negative. Currently, the majority of Flagstone Suisse reinsurance contracts permit cancellation if its financial strength rating is downgraded below A- by A.M. Best Co. A downgrade by any rating organization could result in a significant reduction in the number of reinsurance contracts we write and in a substantial loss of business as our customers, and brokers that place such business, move to other competitors with higher financial strength ratings, as well as negative consequences for our results of operations, cash flows, competitive position and business prospects. In light of the foregoing and the low investment return environment, the losses associated with catastrophic events and reductions in our reserves during the first quarter of 2011, there may potentially exist the situation where it is necessary to raise additional capital in the future to maintain our historical volume of business, write new business successfully or invest in our existing businesses and maintain our financial strength ratings or otherwise manage our business and respond to competitive pressures in our industry. Raising capital may include public or private debt or equity financings, the acquisition or disposition of assets or businesses, financing through special purpose entities or strategic transactions. Our ability to raise capital on acceptable terms or at all is not assured and will depend on our financial condition, our financial strength ratings, market conditions at the time and other matters beyond our control. Although we regularly provide financial and other information to rating agencies to both maintain and enhance existing financial strength ratings, we cannot assure that our financial strength ratings will not be downgraded in the future by any of these agencies.

Because the Company’s financial strength ratings are under review or on negative outlook and due to the low returns environment, the losses associated with catastrophic events and a reduction in our reserves (as previously disclosed), the Company may need to raise additional capital in order to continue our business at current levels as described above.

These and other events that could cause actual results to differ are discussed in more detail from time to time in our filings with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by U.S. Federal securities laws. Readers are cautioned not to place undue reliance on these forward-looking statements, which are subject to significant uncertainties and speak only as of the date on which they are made.

FLAGSTONE REINSURANCE HOLDINGS, S.A.

REGULATION G

NON-GAAP FINANCIAL MEASURES

In presenting the Company’s results, management has included and discussed non-GAAP financial measures. Management believes that these non-GAAP measures, which may be defined differently by other companies, better explain the Company’s results of operations in a manner that allows for a more complete understanding of the underlying trends in the Company’s business. However, these measures should not be viewed as a substitute for those determined in accordance with U.S. GAAP.

BASIC BOOK VALUE PER COMMON SHARE

Basic book value per common share is defined as total Flagstone shareholders’ equity divided by the number of common shares outstanding at the end of the period plus vested restricted share units, giving no effect to dilutive securities.

DILUTED BOOK VALUE PER COMMON SHARE

The Company has included diluted book value per common share because it takes into account the effect of dilutive securities, therefore, the Company believes it is a better measure of calculating shareholder returns than basic book value per common share. Diluted book value per common share is defined as total Flagstone 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, performance share units and restricted share units. When the effect of securities would be anti-dilutive, these securities are excluded from the calculation of diluted book value per common share. The warrant was anti-dilutive and was excluded from the calculation of diluted book value per common share for all periods presented.

ANNUALIZED NET OPERATING RETURN ON AVERAGE FLAGSTONE SHAREHOLDERS’ EQUITY

Annualized net operating return on average Flagstone shareholders’ equity is defined as net operating income (net income attributable to Flagstone 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) divided by average Flagstone shareholders’ equity (the sum of opening and closing Flagstone shareholders’ equity divided by two). The result is then annualized (a statistical technique whereby figures covering a period of less than one year are extended to cover a 12 month period).

DILUTED NET OPERATING INCOME PER COMMON SHARE

Diluted net operating income per common share is defined as net income attributable to Flagstone 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 divided by diluted weighted average common shares outstanding.

FLAGSTONE REINSURANCE HOLDINGS, S.A.

FINANCIAL HIGHLIGHTS (Unaudited)

HIGHLIGHTS	Three months ended March 31,
	2011			2010

Gross premiums written	$	422,151		$	400,202
Net premiums written	$	282,160		$	323,781
Net premiums earned	$	250,489		$	216,815
Net investment income	$	9,432		$	7,285
Net (loss) income attributable to Flagstone	$	(161,220)		$	31,504
Net operating (loss) income (1)	$	(161,489)		$	12,079
Comprehensive (loss) income attributable to Flagstone	$	(158,343)		$	28,307
Cash flow from operating activities	$	41,968		$	67,501
Loss and loss adjustment expense reserves	$	1,047,674		$	540,528
Flagstone shareholders’ equity	$	968,793		$	1,207,601

PER COMMON SHARE AND COMMON SHARE DATA
Net (loss) income attributable to Flagstone per common share - Basic	$	(2.32)		$	0.38
Net (loss) income attributable to Flagstone per common share - Diluted	$	(2.32)		$	0.38
Diluted net operating (loss) income per common share (1)	$	(2.33)		$	0.15
Weighted average common shares outstanding - Basic		69,351,852			82,558,971
Weighted average common shares outstanding - Diluted		69,351,852			82,741,580
Basic book value per common share	$	13.77		$	15.04
Diluted book value per common share	$	13.34		$	14.25
Diluted book value per common share plus accumulated distributions (2)	$	13.94		$	14.67
Distributions declared per common share (2)	$	0.04		$	0.04

FINANCIAL RATIOS
Change in diluted book value per share (3)		(13.7)	%		2.3	%

Loss ratio		139.6	%		58.8	%
Acquisition cost ratio		20.7	%		19.8	%
General and administrative expense ratio		10.0	%		19.0	%
Combined ratio		170.3	%		97.6	%

INVESTMENT DATA
Total assets	$	3,025,662		$	2,817,419
Total cash and investments (4)	$	2,021,752		$	1,985,038

(1)Net operating (loss) income is defined as net income attributable to Flagstone 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.
(2)Distributions declared per common share are in the form of a non-dividend return of capital. Prior to the Company's redomestication to Luxembourg on May 17, 2010, such distributions were in the form of dividends.
(3)Change in diluted book value per common share represents the increase (decrease) in diluted book value per common share in the period plus distributions declared.
(4)Cash and investments represents the total cash and cash equivalents, restricted cash, fixed maturity investments, short term investments, equities, other investments, accrued interest receivable and net receivable for investments purchased.

FLAGSTONE REINSURANCE HOLDINGS, S.A.

CONSOLIDATED STATEMENTS OF (LOSS) INCOME - QUARTERLY (Unaudited)

		Three months ended														Year ended
	March 31, 2011			December 31, 2010			September 30, 2010			June 30, 2010			March 31, 2010			December 31, 2010
REVENUES
Gross premiums written	$	422,151		$	142,388		$	185,649		$	369,611		$	400,202		$	1,097,850
Premiums ceded		(139,991)			(35,533)			(26,273)			(75,769)			(76,421)			(213,996)
Net premiums written		282,160			106,855			159,376			293,842			323,781			883,854
Change in net unearned premiums		(31,671)			97,641			39,318			(61,763)			(106,966)			(31,770)
Net premiums earned		250,489			204,496			198,694			232,079			216,815			852,084
Net investment income		9,432			8,490			7,488			8,219			7,285			31,482
Net realized and unrealized gains (losses) - investments		10,904			6,464			40,165			(12,671)			9,811			43,769
Net realized and unrealized (losses) gains - other		(690)			3,072			7,677			(1,966)			5,658			14,441
Other income		4,611			6,188			1,785			6,531			11,041			25,545
Total revenues		274,746			228,710			255,809			232,192			250,610			967,321

EXPENSES
Loss and loss adjustment expenses		349,749			131,805			119,089			151,863			127,379			530,136
Acquisition costs		51,756			45,784			30,615			45,584			42,837			164,820
General and administrative expenses		28,098			33,807			46,001			38,576			35,964			154,348
Stock based compensation expense		(3,005)			4,651			3,337			4,146			5,211			17,345
Interest expense		2,946			2,603			2,690			2,545			2,514			10,352
Net foreign exchanges losses (gains)		9,945			(541)			17,072			(7,856)			(3,956)			4,719
Total expenses		439,489			218,109			218,804			234,858			209,949			881,720

(Loss) income before income taxes and interest in earnings of equity investments		(164,743)			10,601			37,005			(2,666)			40,661			85,601
Recovery (provision) for income tax		4,632			8,309			(966)			(438)			(2,852)			4,053
Interest in earnings of equity investments		(285)			(334)			(364)			(283)			(259)			(1,240)
Net (loss) income		(160,396)			18,576			35,675			(3,387)			37,550			88,414
Less: (Income) loss attributable to noncontrolling interest		(824)			(3,526)			1,586			16,656			(6,046)			8,670
NET (LOSS) INCOME ATTRIBUTABLE TO FLAGSTONE	$	(161,220)		$	15,050		$	37,261		$	13,269		$	31,504		$	97,084

Net (loss) income	$	(160,396)		$	18,576		$	35,675		$	(3,387)		$	37,550		$	88,414
Change in currency translation adjustment		2,877			136			5,352			(1,184)			(3,697)			607
Change in defined benefit pension plan obligation		-			5			83			(397)			500			191
Comprehensive (loss) income		(157,519)			18,717			41,110			(4,968)			34,353			89,212
Less: Comprehensive (loss) income attributable to noncontrolling interest		(824)			(3,526)			1,586			16,656			(6,046)			8,670
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO FLAGSTONE	$	(158,343)		$	15,191		$	42,696		$	11,688		$	28,307		$	97,882

KEY RATIOS
Loss ratio		139.6	%		64.5	%		59.9	%		65.4	%		58.8	%		62.2	%
Acquisition cost ratio		20.7	%		22.4	%		15.4	%		19.6	%		19.8	%		19.3	%
General and administrative expense ratio (1)		10.0	%		18.8	%		24.8	%		18.4	%		19.0	%		20.1	%
Combined ratio		170.3	%		105.7	%		100.1	%		103.4	%		97.6	%		101.6	%

PER COMMON SHARE DATA
Weighted average common shares outstanding - Basic		69,351,852			75,050,491			77,631,156			79,479,918			82,558,971			78,656,688
Weighted average common shares outstanding - Diluted (2)		69,351,852			75,249,804			77,772,847			79,613,131			82,741,580			78,880,590

Net (loss) income attributable to Flagstone per common share - Basic	$	(2.32)		$	0.20		$	0.48		$	0.17		$	0.38		$	1.23
Net (loss) income attributable to Flagstone per common share - Diluted	$	(2.32)		$	0.20		$	0.48		$	0.17		$	0.38		$	1.23

(1) The general and administrative expense ratio is inclusive of general and administrative expenses and stock based compensation expense.
(2) Dilutive share equivalents have been excluded in the weighted average common shares used for the calculation of diluted earnings per share in periods of net loss because the effect of such securities would be anti-dilutive.

FLAGSTONE REINSURANCE HOLDINGS, S.A.

SEGMENT REPORTING (Unaudited)

	Three months ended March 31, 2011														Three months ended March 31, 2010
	Reinsurance			Lloyd's			Island Heritage			Inter segment Eliminations (1)		Total			Reinsurance			Lloyd's			Island Heritage			Inter segment Eliminations (1)		Total

Gross premiums written	$	366,702		$	48,530		$	20,946		$	(14,027)	$	422,151		$	342,692		$	52,189		$	17,762		$	(12,441)	$	400,202
Premiums ceded		(118,761)			(20,526)			(14,731)			14,027		(139,991)			(66,855)			(11,605)			(10,402)			12,441		(76,421)
Net premiums written		247,941			28,004			6,215			-		282,160			275,837			40,584			7,360			-		323,781
Net premiums earned	$	212,292		$	37,827		$	370		$	-	$	250,489		$	178,971		$	35,688		$	2,156		$	-	$	216,815
Other related income		469			948			7,303			(4,504)		4,216			470			8,644			5,606			(3,884)		10,836
Loss and loss adjustment expenses		(310,899)			(38,414)			(436)			-		(349,749)			(97,558)			(29,428)			(393)			-		(127,379)
Acquisition costs		(42,347)			(9,386)			(4,527)			4,504		(51,756)			(33,735)			(8,994)			(3,992)			3,884		(42,837)
General and administrative expenses (2)		(17,170)			(5,715)			(2,208)			-		(25,093)			(34,057)			(4,942)			(2,176)			-		(41,175)
Underwriting (loss) income	$	(157,655)		$	(14,740)		$	502		$	-	$	(171,893)		$	14,091		$	968		$	1,201		$	-	$	16,260
Loss ratio (3)		146.4	%		101.6	%		5.7	%				139.6	%		54.5	%		82.5	%		5.1	%				58.8	%
Acquisition cost ratio (3)		19.9	%		24.8	%		59.0	%				20.7	%		18.8	%		25.2	%		51.4	%				19.8	%
General and administrative expense ratio (3)		8.1	%		15.1	%		28.8	%				10.0	%		19.0	%		13.8	%		28.0	%				19.0	%
Combined ratio (3)		174.4	%		141.5	%		93.5	%				170.3	%		92.3	%		121.5	%		84.5	%				97.6	%
Total assets	$	2,604,508		$	319,545		$	101,609				$	3,025,662		$	2,514,019		$	211,503		$	91,897				$	2,817,419

(1) Inter segment eliminations relate to Flagstone Suisse quota share arrangements with Island Heritage and Lloyd's.
(2) General and administrative expenses includes stock based compensation expense.
(3) For Island Heritage segment all ratios calculated using expenses divided by net premiums earned plus other related income.

FLAGSTONE REINSURANCE HOLDINGS, S.A.

GROSS PREMIUMS WRITTEN BY LINE OF BUSINESS AND
GEOGRAPHIC AREA OF RISK (Unaudited)

		Three months ended March 31,
		2011				2010
		Gross premiums written		Percentage of total		Gross premiums written		Percentage of total
Line of Business
Reinsurance and Lloyd's (1)
	Property catastrophe	$	201,862	47.8	%	$	208,256	52.1	%
	Property		83,316	19.7	%		71,586	17.9	%
	Short-tail specialty and casualty		116,027	27.5	%		102,598	25.6	%
Island Heritage
	Insurance		20,946	5.0	%		17,762	4.4	%
Total		$	422,151	100	%	$	400,202	100.0	%


		Three months ended March 31,
		2011				2010
		Gross premiums written		Percentage of total		Gross premiums written		Percentage of total
Geographic area of risk insured (2)
Caribbean (3)		$	23,599	5.6	%	$	22,111	5.5	%
Europe			81,819	19.4	%		77,082	19.3	%
Japan and Australasia			43,852	10.4	%		20,007	5.0	%
North America			125,654	29.8	%		139,087	34.8	%
Worldwide risks (4)			122,679	29.0	%		119,021	29.7	%
Other			24,548	5.8	%		22,894	5.7	%
Total		$	422,151	100.0	%	$	400,202	100.0	%

(1)	Gross premiums written relating to the Lloyd’s segment are primarily included in short-tail specialty and casualty and property.
(2)	Except as otherwise noted, each of these categories includes contracts that cover risks located primarily in the designated geographic area.
(3)	Includes gross premiums written relating to the Island Heritage segment.
(4)	Includes contracts that cover risks in two or more geographic zones.

FLAGSTONE REINSURANCE HOLDINGS, S.A.

CONSOLIDATED BALANCE SHEETS (Unaudited)

	As at
	March 31, 2011			December 31, 2010			September 30, 2010			June 30, 2010			March 31, 2010
ASSETS
Investments:
Fixed maturity investments, at fair value	$	1,358,230		$	1,473,863		$	1,563,469		$	1,423,573		$	1,199,577
Short term investments, at fair value		18,046			14,251			19,469			30,320			310,061
Other investments		121,721			120,047			108,855			98,200			56,607
Total investments		1,497,997			1,608,160			1,691,793			1,552,093			1,566,245

Cash and cash equivalents		397,090			345,705			308,962			370,588			412,441
Restricted cash		55,871			43,413			51,266			24,742			24,293
Premium balances receivable		438,426			318,455			403,861			502,476			386,831
Unearned premiums ceded		147,827			68,827			90,084			120,555			83,125
Reinsurance recoverable		90,017			28,183			27,834			22,589			22,213
Accrued interest receivable		14,139			15,599			14,007			13,723			9,475
Receivable for investments sold		75,574			1,795			26,321			19,443			41,104
Deferred acquisition costs		73,905			65,917			74,779			78,582			66,057
Funds withheld		25,256			25,934			25,806			27,709			23,934
Goodwill		16,474			16,381			16,405			16,246			16,295
Intangible assets		32,256			31,549			31,963			31,756			33,528
Asset held for sale		2,300			2,300			11,000			-			-
Other assets		158,530			146,984			123,392			122,296			131,878
Total assets	$	3,025,662		$	2,719,202		$	2,897,473		$	2,902,798		$	2,817,419

LIABILITIES
Loss and loss adjustment expense reserves	$	1,047,674		$	721,314		$	683,278		$	602,451		$	540,528
Unearned premiums		492,748			378,804			497,011			557,207			466,022
Insurance and reinsurance balances payable		140,845			82,134			78,430			101,523			72,883
Payable for investments purchased		18,919			3,106			17,205			17,915			68,520
Long term debt		252,174			251,122			251,472			249,647			251,309
Other liabilities		88,311			86,127			87,688			69,959			49,710
Total liabilities		2,040,671			1,522,607			1,615,084			1,598,702			1,448,972

EQUITY
Common voting shares		845			845			850			850			850
Common shares held in treasury, at cost		(162,146)			(178,718)			(92,177)			(77,351)			(53,351)
Additional paid-in capital		880,066			904,235			922,200			922,320			918,009
Accumulated other comprehensive loss		(3,301)			(6,178)			(6,319)			(11,754)			(10,173)
Retained earnings		253,329			414,549			399,499			362,238			352,266
Total Flagstone shareholders' equity		968,793			1,134,733			1,224,053			1,196,303			1,207,601
Noncontrolling interest in subsidiaries (1)		16,198			61,862			58,336			107,793			160,846
Total equity		984,991			1,196,595			1,282,389			1,304,096			1,368,447
Total liabilities and equity	$	3,025,662		$	2,719,202		$	2,897,473		$	2,902,798		$	2,817,419

Basic book value per common share	$	13.77		$	16.48		$	15.93		$	15.28		$	15.04
Diluted book value per common share	$	13.34		$	15.51		$	15.10		$	14.47		$	14.25
Debt to total capitalization (2)		20.7	%		18.1	%		17.0	%		17.3	%		17.2	%

(1) Noncontrolling interest in subsidiaries includes Mont Fort Re (see Pages 14 and 15 for additional information), Island Heritage, and IAL King Air Limited (with effect from October 1, 2009).
(2) Comprises long term debt divided by the sum of long term debt plus Flagstone shareholders' equity.

FLAGSTONE REINSURANCE HOLDINGS, S.A.

INVESTMENT PORTFOLIO COMPOSITION (Unaudited)

		As at
TYPE OF INVESTMENT		March 31, 2011				December 31, 2010				September 30, 2010				June 30, 2010				March 31, 2010
U.S. government and agency securities		$	214,748	14.3	%	$	271,836	16.9	%	$	272,798	16.1	%	$	265,010	17.1	%	$	427,731	27.3	%
U.S. states and political subdivisions			26	0.0	%		92	0.0	%		1,605	0.1	%		1,617	0.1	%		2,206	0.1	%
Other foreign governments			322,494	21.5	%		285,925	17.8	%		288,502	17.1	%		255,975	16.5	%		58,296	3.7	%
Corporates			527,896	35.3	%		602,544	37.5	%		614,299	36.3	%		580,712	37.4	%		469,900	30.0	%
Mortgage-backed securities			196,969	13.2	%		222,857	13.9	%		238,701	14.1	%		161,830	10.4	%		179,296	11.5	%
Asset-backed securities			96,097	6.4	%		90,608	5.6	%		147,564	8.7	%		158,429	10.2	%		62,148	4.0	%
	Total fixed maturities		1,358,230	90.7	%		1,473,862	91.7	%		1,563,469	92.4	%		1,423,573	91.7	%		1,199,577	76.6	%
Short term investments			18,046	1.2	%		14,251	0.9	%		19,469	1.2	%		30,320	2.0	%		310,061	19.8	%
	Total		1,376,276	91.9	%		1,488,113	92.6	%		1,582,938	93.6	%		1,453,893	93.7	%		1,509,638	96.4	%
Other investments			121,721	8.1	%		120,047	7.4	%		108,855	6.4	%		98,200	6.3	%		56,607	3.6	%
	Total	$	1,497,997	100.0	%	$	1,608,160	100.0	%	$	1,691,793	100.0	%	$	1,552,093	100.0	%	$	1,566,245	100.0	%

CREDIT QUALITY OF FIXED MATURITIES AND SHORT TERM INVESTMENTS
AAA		$	832,871	60.5	%	$	903,230	60.7	%	$	991,396	62.6	%	$	912,586	62.7	%	$	1,171,384	77.6	%
AA			197,275	14.3	%		193,302	13.0	%		208,192	13.2	%		182,548	12.6	%		91,165	6.0	%
A			223,549	16.3	%		262,086	17.6	%		270,537	17.1	%		245,897	16.9	%		168,916	11.2	%
BBB			122,581	8.9	%		129,495	8.7	%		112,813	7.1	%		112,862	7.8	%		78,173	5.2	%
	Total	$	1,376,276	100.0	%	$	1,488,113	100.0	%	$	1,582,938	100.0	%	$	1,453,893	100.0	%	$	1,509,638	100.0	%

MATURITY PROFILE OF FIXED MATURITIES AND SHORT TERM INVESTMENTS
Within one year		$	50,149	3.6	%	$	39,909	2.7	%	$	46,198	2.9	%	$	60,357	4.2	%	$	424,133	28.0	%
From one to five years			697,135	50.7	%		836,825	56.2	%		865,384	54.7	%		800,159	55.0	%		581,532	38.5	%
From five to ten years			180,556	13.1	%		202,136	13.6	%		185,685	11.7	%		187,742	12.9	%		222,979	14.8	%
Above ten years			155,370	11.3	%		95,778	6.4	%		99,406	6.3	%		84,420	5.8	%		38,575	2.6	%
Asset-backed and mortgage-backed securities			293,066	21.3	%		313,465	21.1	%		386,265	24.4	%		321,215	22.1	%		242,419	16.1	%
	Total	$	1,376,276	100.0	%	$	1,488,113	100.0	%	$	1,582,938	100.0	%	$	1,453,893	100.0	%	$	1,509,638	100.0	%

Average credit quality			AA+				AA+				AA+				AA+				AA+

OTHER INVESTMENTS
Investment funds		$	46,331			$	39,993			$	28,471			$	22,818			$	5,734
Catastrophe bonds			72,327				76,691				76,798				71,422				46,600
Equity securities			268				283				172				182				212
Other investments			2,795				3,080				3,414				3,778				4,061
	Total	$	121,721			$	120,047			$	108,855			$	98,200			$	56,607

FLAGSTONE REINSURANCE HOLDINGS, S.A.

RESERVE FOR LOSSES AND LOSS EXPENSES: PAID TO INCURRED ANALYSIS (Unaudited)

	Three months ended March 31, 2011									Three months ended December 31, 2010									Three months ended September 30, 2010
Loss and loss adjustment expense reserves	Gross			Recoveries			Net			Gross			Recoveries			Net			Gross			Recoveries			Net

Beginning of period	$	721,314		$	(28,183)		$	693,131		$	683,278		$	(27,834)		$	655,444		$	602,451		$	(22,589)		$	579,862

Incurred		413,219			(63,470)			349,749			135,129			(3,325)			131,804			124,636			(5,547)			119,089

Other (1)		5,573			(2,052)			3,521			6,345			393			6,738			22,586			(3,068)			19,518

Paid		(92,432)			3,688			(88,744)			(103,438)			2,583			(100,855)			(66,395)			3,370			(63,025)

End of period	$	1,047,674		$	(90,017)		$	957,657		$	721,314		$	(28,183)		$	693,131		$	683,278		$	(27,834)		$	655,444

Paid to incurred percentage		22.4	%		5.8	%		25.4	%		76.5	%		77.7	%		76.5	%		53.3	%		60.8	%		52.9	%


	Three months ended June 30, 2010									Three months ended March 31, 2010
Loss and loss adjustment expense reserves	Gross			Recoveries			Net			Gross			Recoveries			Net

Beginning of period	$	540,528		$	(22,213)		$	518,315		$	480,660		$	(19,270)		$	461,390

Incurred		154,838			(2,975)			151,863			134,801			(7,422)			127,379

Other (1)		(10,511)			1,018			(9,493)			(5,041)			2,101			(2,940)

Paid		(82,404)			1,581			(80,823)			(69,892)			2,378			(67,514)

End of period	$	602,451		$	(22,589)		$	579,862		$	540,528		$	(22,213)		$	518,315

Paid to incurred percentage		53.2	%		53.1	%		53.2	%		51.8	%		32.0	%		53.0	%

(1) This amount represents the movement in reserves as a result of foreign exchange movements.

FLAGSTONE REINSURANCE HOLDINGS, S.A.

CAPITALIZATION (Unaudited)

	As at
	March 31, 2011			December 31, 2010			September 30, 2010			June 30, 2010			March 31, 2010

Long term debt	$	252,174		$	251,122		$	251,472		$	249,647		$	251,309
Flagstone shareholders’ equity		968,793			1,134,733			1,224,053			1,196,303			1,207,601
Total capitalization	$	1,220,967		$	1,385,855		$	1,475,525		$	1,445,950		$	1,458,910

Leverage ratio:
Debt to total capitalization		20.7	%		18.1	%		17.0	%		17.3	%		17.2	%

				March 31, 2011						March 31, 2010
				Debt or Facility Principal			Outstanding			Debt or Facility Principal			Outstanding
Debt and financing arrangements
Junior Subordinated Deferrable Interest Notes (a)				$	25,000		$	25,000		$	25,000		$	25,000
Junior Subordinated Deferrable Interest Notes (b)				$	100,000		$	88,750		$	100,000		$	88,750
Deferrable Interest Debentures (c)				$	120,000		$	120,000		$	120,000		$	120,000
Deferrable Interest Debentures (d)				€	13,000		€	13,000		€	13,000		€	13,000
Letter of credit facility (e)				$	550,000		$	406,588		$	450,000		$	394,521
Letter of credit facility (f)				$	200,000		$	32,306		$	200,000		$	32,306
Letter of credit facility (g)				$	-		$	-		$	50,000		$	-

Notes:
(a) The Junior Subordinated Deferrable Interest Notes have a floating rate equal to LIBOR plus 310 basis points per annum reset quarterly. The notes mature on September 15, 2037, and may be called at par by the Issuer at any time after September 15, 2012.

(b) The Junior Subordinated Deferrable Interest Notes have a floating rate equal to LIBOR plus 300 basis points per annum reset quarterly. The notes mature on July 30, 2037, and may be called at par by the Issuer at any time after July 30, 2012.

(c) The Deferrable Interest Debentures have a floating rate equal to LIBOR plus 354 basis points per annum reset quarterly. The notes mature on September 15, 2036, and may be called at par by the Issuer at any time after September 15, 2011.

(d) The Deferrable Interest Debentures have a floating rate equal to EURIBOR plus 354 basis points per annum reset quarterly. The notes mature on September 15, 2036 and may be called at par by the Issuer at any time after September 15, 2011.

(e) On December 21, 2010, Flagstone Suisse and Flagstone Capital Management Luxembourg SICAF – FIS entered into a secured $550.0 million standby letter of credit facility with Citibank Europe Plc. The drawn amount of the facility at December 31, 2010, was secured by $479.6 million of fixed maturity securities from the Company's investment portfolio. This replaces a $450 million facility with Citibank previously in place with Flagstone Suisse.

(f) On March 5, 2009, Flagstone Suisse entered into a secured $200.0 million secured committed letter of credit facility with Barclays Bank Plc. The drawn amount of the facility at December 31, 2010, was secured by $35.9 million of fixed maturity securities from the Company's investment portfolio.

(g) On June 5, 2009, Flagstone Suisse entered into a secured $50.0 million standby letter of credit facility with BNP Paribas. The BNP Facility had an initial term of one year and the Company decided to let the facility expire as per the terms of the agreement effective June 4, 2010.

FLAGSTONE REINSURANCE HOLDINGS, S.A.

EARNINGS PER COMMON SHARE INFORMATION - AS REPORTED, GAAP (Unaudited)


	Three months ended March 31,
	2011		2010

Net (loss) income attributable to Flagstone	$	(161,220)	$	31,504

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Weighted average common shares outstanding - Basic (1)		69,351,852		82,558,971

Dilutive share equivalents:
Weighted average unvested restricted share units (2)		-		182,609
Weighted average common shares outstanding - Diluted		69,351,852		82,741,580

EARNINGS (LOSS) PER COMMON SHARE
Basic	$	(2.32)	$	0.38
Diluted	$	(2.32)	$	0.38


(1) Includes weighted average vested restricted share units.
(2) Dilutive share equivalents have been excluded in the weighted average common shares used for the calculation of diluted earnings per share in periods of net loss because the effect of such securities would be anti-dilutive.

FLAGSTONE REINSURANCE HOLDINGS, S.A.

NON-GAAP FINANCIAL MEASURES RECONCILIATION
BASIC AND DILUTED BOOK VALUE PER COMMON SHARE (Unaudited)

	As at
	March 31, 2011			December 31, 2010			September 30, 2010			June 30, 2010			March 31, 2010
DILUTIVE COMMON SHARES AS IF OUTSTANDING
Flagstone shareholders’ equity	$	968,793		$	1,134,733		$	1,224,053		$	1,196,303		$	1,207,601
Cumulative distributions paid per outstanding common share (1)		0.60			0.56			0.52			0.48			0.44
Common shares outstanding		70,054,875			68,585,588			76,588,153			78,009,113			80,001,073
add in:
vested restricted share units		325,977			262,013			262,013			262,013			270,053
Total common shares and common share equivalents outstanding		70,380,852			68,847,601			76,850,166			78,271,126			80,271,126

Basic book value per common share	$	13.77		$	16.48		$	15.93		$	15.28		$	15.04

Basic book value per common share plus accumulated distributions (1) (2)	$	14.37		$	17.04		$	16.45		$	15.76		$	15.48

Diluted book value on an "as if converted basis"
Flagstone shareholders' equity	$	968,793		$	1,134,733		$	1,224,053		$	1,196,303		$	1,207,601
add in:
proceeds on exercise of warrant (3)		-			-			-			-			-
Adjusted Flagstone shareholders' equity	$	968,793		$	1,134,733		$	1,224,053		$	1,196,303		$	1,207,601

Cumulative distributions paid per outstanding common share (1)	$	0.60		$	0.56		$	0.52		$	0.48		$	0.44

As if converted diluted shares outstanding
Common shares and share equivalents outstanding		70,380,852			68,847,601			76,850,166			78,271,126			80,271,126
add in:
vesting of performance share units		1,965,091			3,998,558			3,945,058			4,095,175			4,130,213
vesting of restricted share units		288,950			315,200			293,925			303,910			319,960
Diluted common shares outstanding		72,634,893			73,161,359			81,089,149			82,670,211			84,721,299

Diluted book value per common share	$	13.34		$	15.51		$	15.10		$	14.47		$	14.25

Diluted book value per common share plus accumulated distributions (1) (2)	$	13.94		$	16.07		$	15.62		$	14.95		$	14.67

Change in diluted book value per common share: Quarter		(14.0)	%		2.7	%		4.3	%		1.5	%		2.0	%
Change in diluted book value per common share adjusted for distributions: Quarter (1) (4)		(13.7)	%		3.0	%		4.4	%		1.9	%		2.2	%
Change in diluted book value per common share adjusted for distributions: Rolling 12 months (1) (4)		(13.7)	%		12.1	%		15.3	%		17.5	%		23.6	%
Annualized change in diluted book value per common share adjusted for distributions since inception		6.8	%		10.3	%		10.2	%		9.7	%		9.8	%

(1) Distributions paid per common share are in the form of a non-dividend return of capital. Prior to the Company's redomestication to Luxembourg on May 17, 2010, such distributions were in the form of dividends.
(2) Basic and diluted book value per common share plus accumulated distributions is calculated by dividing the sum of Flagstone shareholders' equity and cumulative distributions declared by diluted common shares outstanding.
(3) Diluted book value per common share incorporates the assumption that the warrant would not be exercised at the end of any period where the share price is less than the strike price.
(4) Change in diluted book value per common share adjusted for distributions is the internal rate of return of the increase in diluted book value per common share in the period plus distributions declared.

FLAGSTONE REINSURANCE HOLDINGS, S.A.

SUMMARY CONSOLIDATED BALANCE SHEET - MONT FORT (Unaudited)

	As at March 31, 2011
	Flagstone Consolidated Excluding Mont Fort		Mont Fort		Consolidation/ Elimination		Flagstone Consolidated
ASSETS
Investments:
Fixed maturity investments, at fair value	$	1,358,230	$	-	$	-	$	1,358,230
Short term investments, at fair value		18,046		-		-		18,046
Other investments		123,270		-		(1,549)		121,721
Total investments		1,499,546		-		(1,549)		1,497,997

Cash and cash equivalents		378,831		18,259		-		397,090
Restricted cash		55,871		-		-		55,871
Premium balances receivable		452,990		13,565		(28,129)		438,426
Unearned premiums ceded		147,619		208		-		147,827
Reinsurance recoverable		89,844		173		-		90,017
Accrued interest receivable		14,139		-		-		14,139
Receivable for investments sold		75,574		-		-		75,574
Deferred acquisition costs		73,486		419		-		73,905
Funds withheld		25,256		-		-		25,256
Goodwill, intangibles and other assets		207,212		48		-		207,260
Asset held for sale		2,300		-		-		2,300
Due from related parties		272		(272)		-		-
Total assets	$	3,022,940	$	32,400	$	(29,678)	$	3,025,662

LIABILITIES
Loss and loss adjustment expense reserves	$	1,047,281	$	393	$	-	$	1,047,674
Unearned premiums		490,778		1,970		-		492,748
Insurance and reinsurance balance payable		142,579		26,397		(28,131)		140,845
Payable for investments purchased		18,919		-		-		18,919
Long term debt		252,174		-		-		252,174
Other liabilities		86,301		2,010		-		88,311
Total liabilities		2,038,032		30,770		(28,131)		2,040,671

EQUITY
Common voting shares		845		1,400		(1,400)		845
Common shares held in treasury		(162,146)		-		-		(162,146)
Additional paid-in capital		880,066		-		-		880,066
Accumulated other comprehensive loss		(3,301)		-		-		(3,301)
Retained earnings		253,246		230		(147)		253,329
Total Flagstone shareholders' equity		968,710		1,630		(1,547)		968,793
Noncontrolling interest in subsidiaries		16,198		-		-		16,198
Total equity		984,908		1,630		(1,547)		984,991
Total liabilities and equity	$	3,022,940	$	32,400	$	(29,678)	$	3,025,662

FLAGSTONE REINSURANCE HOLDINGS, S.A.

SUMMARY CONSOLIDATED INCOME STATEMENTS - MONT FORT (Unaudited)

	Three months ended March 31, 2011
	Flagstone Consolidated Excluding Mont Fort			Mont Fort		Consolidation/ Elimination		Flagstone Consolidated
REVENUES
Gross premiums written	$	422,151		$	2,421	$	(2,421)	$	422,151
Premiums ceded		(140,158)			(2,254)		2,421		(139,991)
Net premiums written		281,993			167		-		282,160
Change in net unearned premiums		(32,321)			648		2		(31,671)
Net premiums earned		249,672			815		2		250,489
Net investment income		9,379			53		-		9,432
Net realized and unrealized gains (losses) - investments		11,023			(119)		-		10,904
Net realized and unrealized gains - other		(690)			-		-		(690)
Other income (loss)		4,752			(100)		(41)		4,611
Total revenues		274,136			649		(39)		274,746

EXPENSES
Loss and loss adjustment expenses		349,749			-		-		349,749
Acquisition costs		51,705			91		(40)		51,756
General and administrative expenses		25,070			23		-		25,093
Interest expense		2,946			-		-		2,946
Net foreign exchange losses (gains)		9,971			5		(31)		9,945
Total expenses		439,441			119		(71)		439,489

Income (loss) before income taxes and interest in earnings of equity investments		(165,305)			530		32		(164,743)
Provision for income tax		4,632			-		-		4,632
Interest in earnings of equity investments		(285)			-		-		(285)
Net income (loss)		(160,958)			530		32		(160,396)
Less: Loss attributable to noncontrolling interest		(824)			-		-		(824)
NET INCOME (LOSS) ATTRIBUTABLE TO FLAGSTONE	$	(161,782)		$	530	$	32	$	(161,220)

Net income (loss)	$	(160,958)		$	530	$	32	$	(160,396)
Change in currency translation adjustment		2877			-		-		2877
Comprehensive income (loss)		(158,081)			530		32		(157,519)
Less: Comprehensive (income) loss attributable to noncontrolling interest		(268)			-		(556)		(824)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO FLAGSTONE	$	(158,349)		$	530	$	(524)	$	(158,343)

KEY RATIOS
Loss ratio		140.1	%						139.6	%
Acquisition cost ratio		20.7	%						20.7	%
General and administrative expense ratio		10.0	%						10.0	%
Combined ratio		170.8	%						170.3	%

FLAGSTONE REINSURANCE HOLDINGS, S.A.

NON-GAAP FINANCIAL MEASURE RECONCILIATION

NET OPERATING INCOME (Unaudited)

	Three months ended March 31,
	2011			2010

Net (loss) income attributable to Flagstone	$	(161,220)		$	31,504

ADJUSTMENTS FOR:
Net realized and unrealized gains - investments		(10,904)			(9,811)
Net realized and unrealized losses (gains) - other		690			(5,658)
Net foreign exchange losses (gains)		9,945			(3,956)


NET OPERATING (LOSS) INCOME	$	(161,489)		$	12,079


AVERAGE FLAGSTONE SHAREHOLDERS’ EQUITY	$	1,051,763		$	1,209,309


ANNUALIZED NET OPERATING RETURN ON AVERAGE FLAGSTONE SHAREHOLDERS’ EQUITY		(61.4)	%		4.0	%

Flagstone Reinsurance Holdings, S.A. - FORM 8-K - EX-99.2 - FINANCIAL SUPPLEMENT - May 3, 2011

Attached files

Flagstone Reinsurance Holdings, S.A. Reports