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

Attached files

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8-K - CURRENT REPORT - Flagstone Reinsurance Holdings, S.A.	form8k.htm
EX-99.1 - PRESS RELEASE - Flagstone Reinsurance Holdings, S.A.	ex991.htm

Flagstone Reinsurance Holdings, S.A.

INVESTOR FINANCIAL SUPPLEMENT

FIRST QUARTER 2012

Flagstone Reinsurance Holdings, S.A.

65 Avenue de la Gare, L-1611

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 and Recent Developments					1
Cautionary Statement Regarding Forward-Looking Statements					2
Regulation G - Non-GAAP Financial Measures					3
	I.	Financial Highlights			5
	II.	Income Statements
			a.	Consolidated Statements of Income (Loss) - Quarterly	6
			b.	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.	Non-GAAP Financial Measure Reconciliation			14

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.

RECENT DEVELOPMENTS

As previously announced on April 2, 2012, and on April 3, 2012, the Company announced definitive agreements to divest its Island Heritage and Lloyd’s segments, respectively. The Island Heritage transaction closed on April 5, 2012 and the Lloyd’s segment transaction is expected to be completed before the end of the second quarter of 2012. These divestitures were part of a strategic business realignment to address changing business conditions, refocus the Company’s underwriting strategy on its property catastrophe reinsurance business and reduce its focus on operating segments that absorb capital and produce lower returns. Except as explicitly described as held for sale or as discontinued operations, and unless otherwise noted, all discussions and amounts presented herein relate to the continuing operations. All prior years presented have been reclassified to conform to this new presentation.

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: 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 consummate the divestiture of our former Lloyd’s reportable segment described above on acceptable terms or at all, and the timing of the Lloyd’s divestiture; the amount of costs, fees, expenses, indemnification obligations, purchase price adjustments and charges related to the divestitures and realignment initiatives described above; the possibility that the benefits anticipated from the divestitures and realignment initiatives described above will not be fully realized in the timeframe anticipated, if at al; the failure to successfully implement the Company’s business strategy despite the completion of the divestitures and realignment initiatives described above; the size and timing of any charges associated with the initiatives described above; 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.

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 July 29, 2011, Moody’s Investor Services indicated that they have decided to extend their review for possible downgrade in order to continue to evaluate the steps taken by the Company to reduce risk and the extent of further planned changes. On December 19, 2011, Moody’s Investor Services confirmed Flagstone Suisse’s financial strength rating of A3, confirmed that the outlook is negative and removed the ratings from 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 March 1, 2012, Fitch Ratings placed the financial strength ratings of the Company’s and its subsidiaries on rating watch negative following Fitch’s normal periodic review. Fitch noted that the Company suffered a high level of underwriting losses in 2011 that led to a steep decline in shareholders’ equity (30%) that was significantly greater than comparably rated peers. Fitch’s concern was further heightened by the Company’s modest size which presents the possibility that further capital erosion could compromise the Company’s competitive viability. Fitch anticipates resolving the rating watch in the second half of 2012 when the outcome of steps that the Company has taken, or is expected to take in the near term, to improve its financial profile and operating performance, will become more evident. Upon resolution of the rating watch, Fitch’s expectation is that the Company’s ratings will either be downgraded one notch or affirmed at their current levels. On April 12, 2011, A.M. Best Co. re-affirmed the A- financial strength rating of Flagstone Suisse and revised its outlook to negative. On October 24, 2011, A.M. Best Co. commented that the Company’s financial strength rating of A- (Excellent) is unchanged following the restructuring announcement and also noted that the outlook for the Company’s financial strength rating remains negative. On April 4, 2012, after the Company announced that it had entered into definitive agreements for the sale of its Lloyd’s business and Island Heritage, A.M. Best Co. commented that the Company’s financial strength rating of A- (Excellent) remains unchanged and also noted that the outlook for the Company’s financial strength rating remains negative.

Currently, the majority of Flagstone Suisse reinsurance contracts permit cancellation if our financial strength rating is downgraded below A- by A.M. Best Co. Resolution of the negative outlook is dependent on our ability to generate a reasonable and sustainable level of profitability, reduce our dependence on retrocessional support, bring our risk appetite in line with our available capital, continuation of our expense reduction initiatives and, most importantly, improving our overall financial flexibility. We are working to successfully address each of these items. A downgrade or sustained negative outlook 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 resulting in negative consequences for our results of operations, cash flows, competitive position and business prospects. 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 remain on negative outlook or be downgraded in the future by any of these agencies.

We seek to maintain a prudent amount of capital for our business and maintain our overall financial flexibility. When assessing our financial position and potential capital needs, we consider, among other things, the low investment returns environment, our recent and potential net exposure to losses associated with catastrophic events, the amount of and changes in our reserves, underwriting opportunities and market conditions. We may decide to raise additional capital in the future to continue and/or invest in our existing businesses or write new business, although any such decision will be dependent on then-existing market and other conditions.

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 operating (loss) income ((loss) income 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) 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 OPERATING (LOSS) INCOME PER COMMON SHARE

Diluted operating (loss) income per common share is defined as (loss) income 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 divided by diluted weighted average common shares outstanding.

FLAGSTONE REINSURANCE HOLDINGS, S.A.

FINANCIAL HIGHLIGHTS (Unaudited)

HIGHLIGHTS	Three months ended March 31,
	2012			2011

Gross premiums written	$	170,228		$	352,675
Net premiums written	$	85,329		$	233,925
Net premiums earned	$	113,745		$	201,053
Net investment income	$	5,067		$	9,198
Income (loss) from continuing operations	$	27,848		$	(148,173)
Net income (loss) attributable to Flagstone	$	39,185		$	(161,220)
Net operating income (loss) (1)	$	7,593		$	(148,651)
Comprehensive income (loss) attributable to Flagstone	$	43,514		$	(158,343)
Cash flow from operating activities	$	(37,316)		$	41,968
Loss and loss adjustment expense reserves	$	849,975		$	867,470
Flagstone shareholders’ equity	$	829,316		$	968,793

PER COMMON SHARE AND COMMON SHARE DATA
Net income (loss) attributable to Flagstone per common share - Basic	$	0.55		$	(2.32)
Net income (loss) attributable to Flagstone per common share - Diluted	$	0.55		$	(2.32)
Diluted net operating income (loss) per common share (1)	$	0.11		$	(2.14)
Weighted average common shares outstanding - Basic		70,678,937			69,351,852
Weighted average common shares outstanding - Diluted		71,156,700			69,351,852
Basic book value per common share	$	11.62		$	13.77
Diluted book value per common share	$	11.42		$	13.34
Diluted book value per common share plus accumulated distributions	$	12.18		$	13.94
Distributions declared per common share	$	0.04		$	0.04

FINANCIAL RATIOS
Change in diluted book value per share (2)		5.1	%		(13.8)	%

Loss ratio		58.4	%		150.7	%
Acquisition cost ratio		19.9	%		18.9	%
General and administrative expense ratio		19.2	%		8.0	%
Combined ratio		97.5	%		177.6	%

INVESTMENT DATA
Total assets	$	2,834,498		$	3,080,176
Total cash and investments (3)	$	1,479,551		$	1,833,275

(1)Net operating (loss) income 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).
(2)Change in diluted book value per common share represents the increase (decrease) in diluted book value per common share plus accumulated distributions declared in the period.
(3)Cash and investments represents the total cash and cash equivalents, restricted cash, total investments, accrued interest receivable and net payable for investments purchased.

FLAGSTONE REINSURANCE HOLDINGS, S.A.

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

		Three months ended														Year ended
	March 31, 2012			December 31, 2011			September 30, 2011			June 30, 2011			March 31, 2011			December 31, 2011
REVENUES
Gross premiums written	$	170,228		$	80,732		$	92,162		$	264,128		$	352,675		$	789,697
Premiums ceded		(84,899)			(37,529)			(30,577)			(44,409)			(118,750)			(231,265)
Net premiums written		85,329			43,203			61,585			219,719			233,925			558,432
Change in net unearned premiums		28,416			78,561			68,456			(101,099)			(32,872)			13,046
Net premiums earned		113,745			121,764			130,041			118,620			201,053			571,478
Net investment income		5,067			6,647			6,167			12,300			9,198			34,312
Net realized and unrealized gains (losses) - investments		18,103			(4,044)			(19,592)			(7,905)			10,771			(20,770)
Net realized and unrealized gains (losses) - other		6,383			7,503			(18,305)			13,986			(690)			2,494
Other income		2,811			1,372			1,376			1,554			1,132			5,434
Total revenues		146,109			133,242			99,687			138,555			221,464			592,948

EXPENSES
Loss and loss adjustment expenses		66,449			145,167			131,879			96,490			302,999			676,535
Acquisition costs		22,653			20,022			31,619			25,613			38,071			115,325
General and administrative expenses		20,910			28,509			17,785			19,313			19,080			84,686
Stock based compensation expense		950			1,704			2,000			431			(3,005)			1,131
Interest expense		2,958			2,789			3,137			2,892			2,850			11,668
Net foreign exchanges losses (gains)		4,231			1,414			(33,981)			27,445			9,603			4,481
Total expenses		118,151			199,605			152,439			172,184			369,598			893,826
Income (loss) from continuing operations before income taxes and interest in earnings of equity investments		27,958			(66,363)			(52,752)			(33,629)			(148,134)			(300,878)
(Provision) recovery for income tax		(128)			(354)			(668)			827			246			51
Interest in earnings of equity investments		18			(216)			(250)			(171)			(285)			(922)
Income (loss) from continuing operations		27,848			(66,933)			(53,670)			(32,973)			(148,173)			(301,749)
Income (loss) from discontinued operations, net of taxes		12,472			(17,630)			(5,769)			13,960			(12,223)			(21,662)
Net income (loss)		40,320			(84,563)			(59,439)			(19,013)			(160,396)			(323,411)
Less: (Income) loss attributable to noncontrolling interest		(1,135)			(595)			(106)			(1,197)			(824)			(2,722)
NET INCOME (LOSS) ATTRIBUTABLE TO FLAGSTONE	$	39,185		$	(85,159)		$	(59,545)		$	(20,210)		$	(161,220)		$	(326,133)

Net income (loss)	$	40,320		$	(84,563)		$	(59,439)		$	(19,013)		$	(160,396)		$	(323,411)
Change in currency translation adjustment		4,537			(1,915)			(8,677)			873			2,877			(6,842)
Change in defined benefit pension plan obligation		(208)			532			62			(158)			-			436
Comprehensive income (loss)		44,649			(85,946)			(68,054)			(18,298)			(157,519)			(329,817)
Less: Comprehensive loss attributable to noncontrolling interest		(1,135)			(595)			(106)			(1,197)			(824)			(2,722)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO FLAGSTONE	$	43,514		$	(86,541)		$	(68,160)		$	(19,495)		$	(158,343)		$	(332,539)

KEY RATIOS
Loss ratio		58.4	%		119.2	%		101.4	%		81.3	%		150.7	%		118.4	%
Acquisition cost ratio		19.9	%		16.4	%		24.3	%		21.6	%		18.9	%		20.2	%
General and administrative expense ratio (1)		19.2	%		24.8	%		15.2	%		16.6	%		8.0	%		15.0	%
Combined ratio		97.5	%		160.4	%		140.9	%		119.5	%		177.6	%		153.6	%

PER COMMON SHARE DATA
Weighted average common shares outstanding - Basic		70,678,937			70,391,286			70,380,852			70,380,852			69,351,852			70,129,756
Weighted average common shares outstanding - Diluted (2)		71,156,700			70,391,286			70,380,852			70,380,852			69,351,852			70,129,756

Net income (loss) attributable to Flagstone per common share - Basic	$	0.55		$	(1.21)		$	(0.85)		$	(0.29)		$	(2.32)		$	(4.65)
Net income (loss) attributable to Flagstone per common share - Diluted	$	0.55		$	(1.21)		$	(0.85)		$	(0.29)		$	(2.32)		$	(4.65)

(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.

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


	Three months ended March 31,
	2012				2011
	Gross premiums written		Percentage of total		Gross premiums written		Percentage of total
Line of Business
Property catastrophe	$	106,341	62.5	%	$	201,862	57.2	%
Property		37,885	22.3	%		65,799	18.7	%
Short-tail specialty and casualty		26,002	15.2	%		85,014	24.1	%
Total	$	170,228	100.0	%	$	352,675	100.0	%



	Three months ended March 31,
	2012				2011
	Gross premiums written		Percentage of total		Gross premiums written		Percentage of total
Geographic area of risk insured (1)
Caribbean	$	1,500	0.9	%	$	1,793	0.5	%
Europe		49,259	28.9	%		76,514	21.7	%
Japan and Australasia		11,097	6.5	%		42,500	12.0	%
North America		71,419	42.0	%		124,020	35.2	%
Worldwide risks (2)		29,610	17.4	%		92,627	26.3	%
Other		7,343	4.3	%		15,221	4.3	%
Total	$	170,228	100.0	%	$	352,675	100.0	%

(1) Except as otherwise noted, each of these categories includes contracts that cover risks located primarily in the designated geographic area.
(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, 2012			December 31, 2011			September 30, 2011			June 30, 2011			March 31, 2011
ASSETS
Investments:
Fixed maturity investments, at fair value	$	1,132,101		$	1,138,435		$	1,211,335		$	1,280,106		$	1,336,314
Short term investments, at fair value		7,473			10,616			9,452			13,187			17,545
Other investments		131,590			125,534			127,815			127,411			121,721
Total investments		1,271,164			1,274,585			1,348,602			1,420,704			1,475,580
Cash and cash equivalents		217,050			249,424			214,052			198,036			257,301
Restricted cash		22,144			17,538			25,155			23,877			31,253
Premium balances receivable		254,948			236,375			323,549			429,502			347,931
Unearned premiums ceded		82,904			30,550			55,517			86,957			121,829
Reinsurance recoverable		251,207			271,183			221,662			168,407			81,026
Accrued interest receivable		9,914			12,950			12,565			13,134			14,028
Receivable for investments sold		4,060			18			3,964			203,257			73,750
Deferred acquisition costs		39,735			38,155			43,739			60,053			48,100
Funds withheld		20,680			25,116			28,570			30,721			25,256
Goodwill		-			-			3,108			3,108			3,108
Other assets		120,569			160,950			214,933			189,260			181,867
Assets held for sale including discontinued operations		540,123			461,651			495,862			469,057			419,147
Total assets	$	2,834,498		$	2,778,496		$	2,991,278		$	3,296,073		$	3,080,176

LIABILITIES
Loss and loss adjustment expense reserves	$	849,975		$	897,368		$	857,873		$	877,090		$	867,470
Unearned premiums		242,341			215,316			320,407			427,451			357,735
Insurance and reinsurance balances payable		104,266			75,433			80,145			82,119			111,483
Payable for investments purchased		44,781			6,255			20,986			176,750			18,637
Long term debt		251,088			250,575			251,167			252,602			252,174
Other liabilities		52,702			54,059			76,101			66,294			77,373
Liabilities of discontinued operations held for sale		441,409			472,957			490,711			449,468			410,313
Total liabilities		1,986,562			1,971,963			2,097,390			2,331,774			2,095,185

EQUITY
Common voting shares		845			845			845			845			845
Common shares held in treasury, at cost		(150,202)			(160,448)			(161,701)			(161,701)			(162,146)
Additional paid-in capital		859,327			872,819			875,481			877,227			880,066
Accumulated other comprehensive loss		(8,255)			(12,584)			(11,201)			(2,586)			(3,301)
Retained earnings		127,601			88,416			173,574			233,119			253,329
Total Flagstone shareholders' equity		829,316			789,048			876,998			946,904			968,793
Noncontrolling interest in subsidiaries (1)		18,620			17,485			16,890			17,395			16,198
Total equity		847,936			806,533			893,888			964,299			984,991
Total liabilities and equity	$	2,834,498		$	2,778,496		$	2,991,278		$	3,296,073		$	3,080,176

Basic book value per common share	$	11.62		$	11.21		$	12.46		$	13.45		$	13.77
Diluted book value per common share	$	11.42		$	10.90		$	12.11		$	13.08		$	13.34
Debt to total capitalization (2)		23.2	%		24.1	%		22.3	%		21.1	%		20.7	%

(1)Noncontrolling interest in subsidiaries includes Island Heritage.
(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, 2012				December 31, 2011				September 30, 2011				June 30, 2011				March 31, 2011
U.S. government and agency securities		$	318,230	25.0	%	$	323,781	25.5	%	$	200,375	14.9	%	$	208,888	14.7	%	$	208,508	14.1	%
Other foreign governments			77,485	6.1	%		109,515	8.6	%		245,272	18.2	%		262,214	18.5	%		322,171	21.9	%
Corporates			402,720	31.7	%		472,346	37.1	%		500,961	37.1	%		515,145	36.3	%		518,106	35.1	%
Mortgage-backed securities			180,211	14.2	%		175,090	13.7	%		195,974	14.5	%		217,973	15.3	%		194,905	13.2	%
Asset-backed securities			153,455	12.1	%		57,703	4.5	%		68,753	5.1	%		75,886	5.3	%		92,624	6.3	%
	Total fixed maturities		1,132,101	89.1	%		1,138,435	89.4	%		1,211,335	89.8	%		1,280,106	90.1	%		1,336,314	90.6	%
Short term investments			7,473	0.6	%		10,616	0.8	%		9,452	0.7	%		13,187	0.9	%		17,545	1.2	%
	Total		1,139,574	89.7	%		1,149,051	90.2	%		1,220,787	90.5	%		1,293,293	91.0	%		1,353,859	91.8	%
Other investments			131,590	10.3	%		125,534	9.8	%		127,815	9.5	%		127,411	9.0	%		121,721	8.2	%
	Total	$	1,271,164	100.0	%	$	1,274,585	100.0	%	$	1,348,602	100.0	%	$	1,420,704	100.0	%	$	1,475,580	100.0	%

CREDIT QUALITY OF FIXED MATURITIES AND SHORT TERM INVESTMENTS
AAA		$	732,603	64.3	%	$	695,931	60.6	%	$	720,226	59.0	%	$	768,164	59.4	%	$	814,551	60.2	%
AA			115,641	10.1	%		92,299	8.0	%		152,066	12.5	%		161,111	12.5	%		195,518	14.4	%
A			194,924	17.1	%		231,143	20.1	%		222,127	18.2	%		242,190	18.7	%		222,447	16.4	%
BBB			96,406	8.5	%		129,678	11.3	%		126,368	10.4	%		121,828	9.4	%		121,343	9.0	%
	Total	$	1,139,574	100.0	%	$	1,149,051	100.0	%	$	1,220,787	100.0	%	$	1,293,293	100.0	%	$	1,353,859	100.0	%

MATURITY PROFILE OF FIXED MATURITIES AND SHORT TERM INVESTMENTS
Within one year		$	11,638	1.0	%	$	29,663	2.6	%	$	37,793	3.1	%	$	60,521	4.7	%	$	44,738	3.3	%
From one to five years			759,018	66.6	%		754,709	65.6	%		788,310	64.6	%		814,539	63.0	%		688,485	50.9	%
From five to ten years			26,477	2.3	%		107,461	9.4	%		90,674	7.4	%		85,360	6.6	%		178,663	13.2	%
Above ten years			8,775	0.8	%		24,425	2.1	%		39,284	3.2	%		39,014	3.0	%		154,444	11.4	%
Asset-backed and mortgage-backed securities			333,666	29.3	%		232,793	20.3	%		264,726	21.7	%		293,859	22.7	%		287,529	21.2	%
	Total	$	1,139,574	100.0	%	$	1,149,051	100.0	%	$	1,220,787	100.0	%	$	1,293,293	100.0	%	$	1,353,859	100.0	%

Average credit quality			AA				AA				AA+				AA+				AA+

OTHER INVESTMENTS
Investment funds		$	66,507			$	59,278			$	60,846			$	60,138			$	46,331
Catastrophe bonds			62,827				64,016				64,485				64,436				72,327
Equity securities			81				82				110				213				268
Other investments			2,175				2,158				2,374				2,624				2,795
	Total	$	131,590			$	125,534			$	127,815			$	127,411			$	121,721

FLAGSTONE REINSURANCE HOLDINGS, S.A. RESERVE FOR LOSSES AND LOSS EXPENSES: PAID TO INCURRED ANALYSIS (Unaudited)

	Three months ended March 31, 2012									Three months ended December 31, 2011									Three months ended September 30, 2011
Loss and loss adjustment expense reserves	Gross			Recoveries			Net			Gross			Recoveries			Net			Gross			Recoveries			Net

Beginning of period	$	897,368		$	(271,183)		$	626,185		$	857,873		$	(221,662)		$	636,211		$	877,090		$	(168,407)		$	706,683

Incurred		58,570			7,879			66,449			201,910			(56,743)			145,167			191,446			(59,567)			131,879

Other (1)		6,961			(43)			6,918			6,768			(355)			6,413			(44,897)			568			(44,329)

Paid		(112,924)			12,140			(100,784)			(169,183)			7,577			(161,606)			(165,766)			5,744			(160,022)

End of period	$	849,975		$	(251,207)		$	598,768		$	897,368		$	(271,183)		$	626,185		$	857,873		$	(221,662)		$	636,211

Paid to incurred percentage		192.8	%		(154.1)	%		151.7	%		83.8	%		13.4	%		111.3	%		86.6	%		9.6	%		121.3	%


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

Beginning of period	$	867,470		$	(81,026)		$	786,444		$	583,267		$	(22,102)		$	561,165

Incurred		186,375			(89,885)			96,490			363,276			(60,277)			302,999

Other (1)		28,962			(38)			28,924			4,723			(137)			4,586

Paid		(205,717)			2,542			(203,175)			(83,796)			1,490			(82,306)

End of period	$	877,090		$	(168,407)		$	708,683		$	867,470		$	(81,026)		$	786,444

Paid to incurred percentage		110.4	%		2.8	%		210.6	%		23.1	%		2.5	%		27.2	%

(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, 2012			December 31, 2011			September 30, 2011			June 30, 2011			March 31, 2011

Long term debt	$	251,088		$	250,575		$	251,167		$	252,602		$	252,174
Flagstone shareholders’ equity		829,316			789,048			876,998			946,904			968,793
Total capitalization	$	1,080,404		$	1,039,623		$	1,128,165		$	1,199,506		$	1,220,967

Leverage ratio:
Debt to total capitalization		23.2	%		24.1	%		22.3	%		21.1	%		20.7	%

				March 31, 2012						March 31, 2011
				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		$	497,936		$	550,000		$	406,588
Letter of credit facility (f)				$	200,000		$	52,334		$	200,000		$	32,306

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 March 31, 2012, was secured by $586.6 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 August 31, 2011, Flagstone Suisse and Flagstone Capital Management Luxembourg SICAF - FIS entered into a $200.0 million secured committed letter of credit facility with Barclays Bank Plc. The drawn amount of the facility at March 31, 2012, was secured by $61.6 million of fixed maturity securities from the Company's investment portfolio. This replaces a $200 million facility with Barclays Bank Plc which commenced on March 5, 2009.

FLAGSTONE REINSURANCE HOLDINGS, S.A. EARNINGS PER COMMON SHARE INFORMATION - AS REPORTED, GAAP (Unaudited)


	Three months ended March 31,
	2012		2011

Net income (loss) attributable to Flagstone	$	39,185	$	(161,220)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Weighted average common shares outstanding - Basic (1)		70,678,937		69,351,852

Dilutive share equivalents:
Weighted average unvested restricted share units (2)		120,616		-
Weighted average unvested performance share units (2)		357,147		-
Weighted average common shares outstanding - Diluted		71,156,700		69,351,852

EARNINGS (LOSS) PER COMMON SHARE
Basic	$	0.55	$	(2.32)
Diluted	$	0.55	$	(2.32)


(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, 2012			December 31, 2011			September 30, 2011			June 30, 2011			March 31, 2011
DILUTIVE COMMON SHARES AS IF OUTSTANDING
Flagstone shareholders’ equity	$	829,316		$	789,048		$	876,998		$	946,904		$	968,796
Cumulative distributions paid per outstanding common share		0.76			0.72			0.68			0.64			0.60
Common shares outstanding		71,058,922			70,167,142			70,058,168			70,058,168			70,054,875
add in:
vested restricted share units		293,565			233,709			322,684			322,684			325,977
Total common shares and common share equivalents outstanding		71,352,487			70,400,851			70,380,852			70,380,852			70,380,852

Basic book value per common share	$	11.62		$	11.21		$	12.46		$	13.45		$	13.77

Basic book value per common share plus accumulated distributions (1)	$	12.38		$	11.93		$	13.14		$	14.09		$	14.37

Diluted book value on an "as if converted basis"
Flagstone shareholders' equity	$	829,316		$	789,048		$	876,998		$	946,904		$	968,793
add in:
proceeds on exercise of warrant (2)		-			-			-			-			-
Adjusted Flagstone shareholders' equity	$	829,316		$	789,048		$	876,998		$	946,904		$	968,793

Cumulative distributions paid per outstanding common share	$	0.76		$	0.72		$	0.68		$	0.64		$	0.60

As if converted diluted shares outstanding
Common shares and share equivalents outstanding		71,352,487			70,400,851			70,380,852			70,380,852			70,380,852
add in:
vesting of performance share units		1,016,050			1,676,125			1,762,442			1,762,442			1,965,091
vesting of restricted share units		260,050			290,470			275,320			270,150			288,950
Diluted common shares outstanding		72,628,587			72,367,446			72,418,614			72,413,444			72,634,893

Diluted book value per common share	$	11.42		$	10.90		$	12.11		$	13.08		$	13.34

Diluted book value per common share plus accumulated distributions (1)	$	12.18		$	11.62		$	12.79		$	13.72		$	13.94

Change in diluted book value per common share: Quarter		4.7	%		(10.1)	%		(7.4)	%		(2.0)	%		(14.0)	%
Change in diluted book value per common share adjusted for distributions: Quarter (3)		5.1	%		(9.6)	%		(7.1)	%		(1.7)	%		(13.7)	%
Change in diluted book value per common share adjusted for distributions: Rolling 12 months (3)		5.1	%		(28.7)	%		(21.2)	%		(15.2)	%		(13.7)	%
Annualized change in diluted book value per common share adjusted for distributions since inception		3.4	%		2.8	%		4.6	%		6.2	%		6.8	%

(1) 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.
(2) 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.
(3) 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 plus accumulated distributions declared in the period.

FLAGSTONE REINSURANCE HOLDINGS, S.A.

NON-GAAP FINANCIAL MEASURE RECONCILIATION

NET OPERATING INCOME (LOSS) (Unaudited)

	Three months ended March 31,
	2012			2011

Income (loss) from continuing operations	$	27,848		$	(148,173)

ADJUSTMENTS FOR:
Net realized and unrealized gains - investments		(18,103)			(10,771)
Net realized and unrealized (gains) losses - other		(6,383)			690
Net foreign exchange losses		4,231			9,603


NET OPERATING INCOME (LOSS)	$	7,593		$	(148,651)


AVERAGE FLAGSTONE SHAREHOLDERS’ EQUITY	$	809,182		$	1,051,763


ANNUALIZED NET OPERATING RETURN ON AVERAGE FLAGSTONE SHAREHOLDERS’ EQUITY		3.8	%		(56.5)	%

Flagstone Reinsurance Holdings, S.A. - FORM 8-K - EX-99.2 - FINANCIAL SUPPLEMENT - May 4, 2012

Attached files

Flagstone Reinsurance Holdings, S.A. Reports