Flagstone Re Reports Diluted Book Value Per Share of $13.20 for End of Third Quarter 2009

http://www.businesswire.com/news/home/20091102006472/en

HAMILTON, Bermuda--(Business Wire)--
Flagstone Reinsurance Holdings Limited (NYSE:FSR) today announced third quarter
2009 basic book value per share of $13.69 and diluted book value per share of
$13.20, up 6.6% and 6.5%, respectively, for the quarter (percentages inclusive
of dividends). Net income attributable to Flagstone`s common shareholders for
the quarter ended September 30, 2009, was $67.1 million, or $0.80 per diluted
share, compared to a net loss of $(186.5) million, or $(2.18) per diluted share,
for the quarter ended September 30, 2008. Net income available to common
shareholders for the nine months ended September 30, 2009 was $170.7 million, or
$2.01 per diluted share, compared to a net loss of $(111.7) million, or $(1.31)
per diluted share, for the nine months ended September 30, 2008.

Operating highlights for the periods ended September 30, 2009 and 2008 included
the following:

Three months ended September 30, Nine months ended September 30,
2009 2008 % change 2009 2008 % change

(Expressed in millions of U.S. dollars, except % changes and ratios)
Operating income (loss) (1) $ 46.9 $ (38.5 ) (221.7 )% $ 136.1 $ 54.1 151.5 %

Gross premiums written $ 174.6 $ 173.2 0.8 % $ 864.8 $ 686.6 25.9 %

Net premiums earned $ 195.5 $ 188.6 3.6 % $ 555.3 $ 465.7 19.3 %

Combined ratio 77.0 % 129.1 % 75.3 % 94.8 %

Total return on investments 2.0 % (7.2 )% 3.1 % (6.6 )%

1Operating income (loss) is defined as net income (loss) 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.

"Flagstone`s third quarter results continue our excellent performance in 2009,"
said David Brown, Flagstone Chief Executive Officer. "Our core underwriting
results were again strong this quarter, and we continue to develop a
geographically diversified business as well as further expand our specialty
lines, and our Lloyds business. In the quarter, our global platform generated a
loss ratio of 41.0%, creating an underwriting profit of $48.5 million. This
result is especially noteworthy considering the continued growth of our
non-catastrophe business, which now accounts for 49% of our portfolio. A low
loss ratio, when combined with our ability to achieve a high premium to surplus
ratio means our shareholders will benefit from quality book value growth over
time."

Mr. Brown continued, "We believe we are focused on the best rated lines of
business in our industry and continuously optimize our portfolio by allocating
capacity across lines, clients, programs and layers as opportunities arise. Some
rates have softened slightly from historically high levels but continue to
significantly exceed our internal return targets."

"We were pleased with our book value growth this quarter and we continue to
generate excellent underwriting performance with a conservatively positioned
asset portfolio," said Mark Byrne, Flagstone Chairman. "Since Flagstone`s
inception, we have generated 20% rates of top-line growth and industry-leading
loss ratios. The Company continues to maintain strong capital adequacy and,
while we have maintained a strong balance sheet, we have the ability to deploy
our growing capital base to attractive opportunities without incremental
expense. Many cedants are trying to diversify their reinsurance purchases away
from large shares with the largest reinsurers; this has caused some shifting in
programs that have been with the same panel of reinsurers for many years.
Obviously, this kind of change benefits the high-quality, younger companies, and
in 2009 we have gained new business from some of the industry`s most demanding
cedants. Our high offer-to-bind ratio means we are one of the more selective
reinsurers, another advantage of our size and platform. While we like profitable
growth, we have no pressure for top-line growth at the expense of
profitability."

"Q3 2009 is of course a welcome contrast to the third quarter in 2008, which was
our only very disappointing quarter since we started operations in 2006. The
losses in 2008 were on the investment side; we had little credit risk, but we
did have 30% of assets in global equities and commodities. We derisked the
portfolio, and have amended our investment guidelines so that 85% or more of
Flagstone's assets will henceforth be in high grade bonds and cash. While we
recognize that leaves some money on the table during a rally, it also means that
Flagstone is now a purer play on underwriting skill and proprietary technology."

"We continue to look at ways to leverage our platform and provide value to
shareholders," Mr. Byrne concluded. "As significant shareholders in the company,
our executive team`s interests remain strongly aligned with those of all
Flagstone shareholders, and we will continue to make decisions that result in
growth and value creation."

Summary of unaudited consolidated financial data for the periods is as follows:

Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
(Expressed in thousands of U.S. dollars, except for share data and ratios)
Gross premiums written $ 174,590 $ 173,219 $ 864,784 $ 686,643
Net premiums written $ 134,809 $ 151,235 $ 689,592 $ 610,210
Net premiums earned $ 195,517 $ 188,641 $ 555,328 $ 465,665
Net investment income $ 10,779 $ 16,056 $ 19,672 $ 48,031
Loss and loss adjustment expenses $ 80,175 $ 199,768 $ 214,410 $ 295,833
Net income (loss) attributable to Flagstone $ 67,130 $ (186,548 ) $ 170,687 $ (111,740 )
Total Flagstone shareholders' equity $ 1,137,615 $ 1,084,419 $ 1,137,615 $ 1,084,419
Combined ratio (1) 77.0 % 129.1 % 75.3 % 94.8 %
Basic earnings (loss) per share $ 0.80 $ (2.18 ) $ 2.01 $ (1.31 )
Diluted earnings (loss) per share (2) $ 0.80 $ (2.18 ) $ 2.01 $ (1.31 )
Basic book value per share $ 13.69 $ 12.68 $ 13.69 $ 12.68
Diluted book value per share $ 13.20 $ 12.62 $ 13.20 $ 12.62
Change in basic book value per share (3) 6.6 % (14.9 )% 18.7 % (9.6 )%
Change in diluted book value per share (3) 6.5 % (12.7 )% 17.5 % (8.1 )%

(1) Combined ratio is the sum of the loss and expense ratios, which are defined
as follows:

a. Loss ratio is calculated by dividing loss and loss adjustment expenses by net
premiums earned.

b. Expense ratio is calculated by dividing acquisition costs combined with
general and administrative expenses by net premiums earned.

(2) Diluted earnings per share for the quarter ended September 30, 2009 does not
contain the effect of:

a. the warrant conversion as this would be anti-dilutive for GAAP purposes.

b. the PSU conversion until the end of the performance period, when the number
of shares issuable under the PSU Plan will be known. There were 2,813,585 PSU`s
expected to vest under the PSU plan as at September 30, 2009.

(3) Change in basic book value per share and diluted book value per share
represent the increase or decrease in book value in the period plus accumulated
dividends paid.

Basic and diluted book value per share are non-GAAP financial measures. A
reconciliation of these measures to Flagstone`s shareholders` equity is
presented at the end of this release.

Results of Operations

Underwriting results

Reinsurance segment

Gross premiums written for the Company`s reinsurance segment in the three and
nine months ended September 30, 2009 were $132.3 million and $715.5 million,
respectively, compared to $164.1 million and $653.6 million, respectively, for
the same periods in 2008, which represents a (decrease) and increase in gross
premiums written of $(31.8) and $61.9 million, or (19.4)% and 9.5%,
respectively. The decrease in the three months ended September 30, 2009, was
mainly due to a decrease of $22.1 million in reinstatement premiums in the
current quarter due to the absence of significant losses in the current quarter
compared to the same period last year in which we had incurred losses due to
more catastrophic events, including gross losses related to Hurricane Gustav
($13.1 million) and Hurricane Ike ($129.6 million). The increase in the nine
months ended September 30, 2009, is primarily due to the contribution of $38.0
million from Flagstone Africa and Flagstone Alliance, which were not
subsidiaries in 2008, as well as from the rate level increases on catastrophe
exposed treaties, in both North America and International.

The gross premiums written in the third quarter of 2009 include $69.7 million
for property catastrophe, $31.7 million for other property and $30.9 million for
specialty, compared to $81.8 million, $40.2 million and $33.5 million,
respectively, for the same quarter in 2008.

Reinsurance premiums ceded for the three months ended September 30, 2009 and
2008, were $24.2 million and $18.3 million (18.3% and 11.2% of gross reinsurance
premiums written), respectively, representing an increase of $5.9 million.
Reinsurance premiums ceded for the nine months ended September 30, 2009 and
2008, were $120.6 million and $38.7 million (16.9% and 5.9% of gross reinsurance
premiums written), respectively, representing an increase of $81.9 million. The
increase in amount of reinsurance premiums ceded was designed to increase the
Company`s underwriting capacity and provide additional protection against
potential high severity loss events.

Reinsurance net premiums earned were $173.4 million for the three months ended
September 30, 2009, compared to $186.0 million for the three months ended
September 30, 2008, representing a decrease of $12.6 million, or 6.8%, mainly
due to the decrease in reinstatement premiums as mentioned above, which are
fully earned in the period. Reinsurance net premiums earned were $512.1 million
for the nine months ended September 30, 2009, compared to $455.0 million for the
same period in 2008, representing an increase of $57.1 million, or 12.5%. The
increase is primarily due to higher levels of premium writings.

Flagstone`s reinsurance segment reported a combined ratio of 73.5% for the third
quarter of 2009 compared to 128.5% for the third quarter of 2008. The combined
ratio for the nine months ended September 30, 2009, was 71.3% compared to 94.4%
for the same period in 2008.

Loss and loss adjustment expenses were $69.1 million for the third quarter of
2009, representing a loss ratio of 39.9% compared to $198.1 million and a loss
ratio of 106.5% for the same period in 2008. The decrease in the loss ratio from
the third quarter of 2008 was primarily due to the absence of significant losses
in the current quarter compared to the same period last year in which the
Company incurred losses due to more catastrophic events, including gross losses
related to Hurricane Gustav ($13.1 million) and Hurricane Ike ($129.6 million).
Based on updated estimates provided by clients and brokers, Flagstone has
recorded net favorable developments for prior period loss events of $0.4
million, related to small releases on several catastrophe events.

Loss and loss adjustment expenses were $189.3 for the nine months ended
September 30, 2009, representing a loss ratio of 37.0%, compared to $294.0
million and a loss ratio of 64.6% for the same period in 2008.

Flagstone`s reinsurance segment acquisition cost ratio was 17.3% for the third
quarter of 2009, compared to 14.5% for the same period in 2008. The increase in
the acquisition cost ratio in the three months ended September 30, 2009,
compared to the same period in 2008 is primarily a result of lower acquisition
costs on reinstatement premiums impacting the third quarter of 2008 and higher
profit commissions in the current quarter due to the absence of catastrophe
events. The acquisition cost ratio for the nine months ended September 30, 2009
was 17.7%, compared to 16.5% for the same period in 2008.

General and administrative expenses for the three and nine months ended
September 30, 2009, were $28.2 million and $85.1 million, respectively, compared
to $13.9 million and $60.7 million, respectively, for the same periods in 2008.
The increase in the three months ended September 30, 2009, is mainly due to the
increase in stock compensation expense of $14.8 million as we had recorded
negative expenses of $11.6 million in the three months ended September 30, 2008,
due to the significant loss incurred in that period, compared to an expense of
$3.2 million in the current quarter. The increase in the nine months ended
September 30, 2009, compared to the same period in 2008 is primarily due to the
stock compensation increase noted above and to the increased costs associated
with the acquisitions of Flagstone Africa and Flagstone Alliance during the
second and third quarter of 2008, respectively.

Lloyd`s Segment

As a result of the acquisition of Marlborough, the managing agency for Lloyd`s
Syndicate 1861, in November 2008, the Company established a new reporting
segment. Syndicate 1861 began writing business for the benefit of Flagstone
effective January 1, 2009. As such, there are no comparative numbers for the
prior year. The net underwriting loss for the Lloyd`s segment for the three and
nine months ended September 30, 2009, amounted to $0.1 million and $2.0 million,
respectively. Due to the start up nature of the 2009 year of account for
Syndicate 1861, the level of earned premium income is slowly ramping up with new
business writings, placing strain on the underwriting results as the Company has
incurred expenses for the full periods. In addition, due to the start up nature,
there is a very limited level of funds available and therefore minimal
investment income has been earned to date.

Gross premiums written for the three and nine months ended September 30, 2009,
were $24.4 million and $109.9 million, respectively, and consist primarily of
property and specialty lines. For the three and nine months ended September 30,
2009, the property line gross premiums written were $2.7 million and $8.6
million, respectively, and the specialty lines were $21.7 million and $101.3
million, respectively, for the same periods.

Premiums ceded for the three and nine months ended September 30, 2009 were $10.2
million and $21.8 million, respectively (41.8% and 19.8% of gross premiums
written, respectively). In the normal course of its business, the Company
purchases reinsurance in order to manage its exposures. The amount and type of
reinsurance that the Company enters into is dependent on a variety of factors,
including the cost of a particular reinsurance cover and the nature of its gross
premiums written during a particular period.

Net premiums earned for the three and nine months ended September 30, 2009,
totaled $18.3 million and $38.5 million, respectively. The net premiums earned
are a function of the timing and amount of premiums written and given the start
up nature of the syndicate`s writings, premiums earned are small relative to the
writings during the current quarter and year to date.

Other related income, derived from services provided to syndicates and third
parties, totaled $1.5 million and $3.9 million, respectively, for the three and
nine months ended September 30, 2009.

Loss and loss adjustment expenses for the three and nine months ended September
30, 2009, amounted to $11.0 million and $24.3 million, respectively. There were
no significant loss events recorded during the three and nine months ended
September 30, 2009.

Acquisition costs for the three and nine months ended September 30, 2009,
totaled $4.6 million and $8.5 million, respectively, for an acquisition cost
ratio of 25.4% and 22.2%, respectively.

General and administrative expenses for the three and nine months ended
September 30, 2009 were $4.2 million and $11.5 million, respectively. General
and administrative expenses include staff and salary related costs,
administration expenses and Lloyd`s specific costs such as syndicate expenses.

Insurance segment

The net underwriting income (loss) for the third quarter ended September 30,
2009, amounted to $1.5 million compared to $(0.2) million for same period in
2008. For the nine months ended September 30, 2009, underwriting income totaled
$0.9 million compared to $0.8 million for the same period in 2008.

Gross premiums written were $28.2 million and $70.0 million, respectively, for
the three and nine months ended September 30, 2009, compared to $17.7 million
and $63.5 million, respectively, for the same periods ended September 30, 2008.
The increase is primarily related to continued growth in the Cayman Islands,
Bahamas and Turks and Caicos, partially offset by a reduction in premiums as a
result of the cessation of business of the Company`s agent in Jamaica. Contracts
are written on a per risk basis and consist primarily of property lines.
Seasonality is inherent for most Caribbean insurers given that the storm season
begins June 1 and concludes November 30.

Insurance premiums ceded for the three and nine months ended September 30, 2009,
were $15.6 million and $63.5 million, respectively, compared to $12.2 million
and $68.2 million, respectively, for the same periods ended September 30, 2008.

Net premiums earned for the three and nine months ended September 30, 2009, were
$3.8 million and $4.7 million, respectively, compared to $2.7 million and $10.7
million, respectively, for the same periods ended September 30, 2008. The
decrease in net premiums earned for the nine months ended September 30, 2009,
compared to the nine months ended September 30, 2008 is primarily due to the
difference in the reinsurance program in place for both years.

Loss and loss adjustment expenses, acquisition costs and general and
administrative expenses incurred totaled $6.4 million and $18.6 million,
respectively, for the three and nine months ended September 30, 2009, compared
to $7.7 million and $18.1 million, respectively, for the three and nine months
ended September 30, 2008.

Investment results

The total return on the Company`s investment portfolio, excluding noncontrolling
interests in the investment portfolio, comprises investment income and realized
and unrealized gains and losses on investments. For the three and nine months
ended September 30, 2009, the total return on invested assets was 2.0% and 3.1%,
respectively compared to (7.2)% and (6.6)%, respectively, for the three and nine
months ended September 30, 2008. The Company modified its asset allocation
significantly in the fourth quarter of 2008, and therefore, the results for the
periods ended September 30, 2009 and September 30, 2008, are not directly
comparable.

Net investment income

Net investment income for the three months ended September 30, 2009, was $10.8
million, compared to $16.1 million for the same period in 2008, a decrease of
$5.3 million. The decrease is principally due to lower amortization on the
Treasury Inflation Protection Securities ("TIPS") in the current period as
compared to the same period of 2008 caused by lower inflation index and also by
lower short-term interest rates in 2009 and 2008.

Net investment income for the nine months ended September 30, 2009, was $19.7
million compared to $48.0 million for the same period in 2008, a decrease of
$28.3 million. The decrease is due to the decline in interest rates from 2008 to
2009 and also to the negative amortization on the TIPS in the first three months
of 2009. This negative amortization was caused by the impact of negative
inflation index. It should be noted that the Company`s TIPS portfolio generated
positive total returns of 7.1% for the nine months ended September 30, 2009.
However, this return is recorded as $1.9 million of negative amortization income
and $21.7 million of realized and unrealized gains. In comparison, for the nine
months ended September 30, 2008, the return was 1.8% which was recorded as $14.6
million of positive amortization income and $2.2 million of realized and
unrealized losses respectively. Flagstone`s net investment income may be
impacted by movements in inflation rates.

Net realized and unrealized gains and losses - investments

Net realized and unrealized gains on the Company`s investment portfolio for the
three months and nine months ended September 30, 2009, amounted to $21.3 million
and $26.5 million, respectively, compared to net realized and unrealized losses
of $138.7 and $160.4 million, for the three and nine months ended September 30,
2008, respectively. The gains in the three and nine months ended September 30,
2009, are attributed to positive performance on commodity futures and unrealized
gains on the TIPS portfolio. The losses for the three and nine months ended
September 30, 2008, are attributable to the negative performance of global
equity markets.

Treasury hedging and other

Net realized and unrealized gains and losses - other

The Company's policy is to hedge the majority of its non-investment currency
exposure with derivative instruments such as foreign currency swaps and forward
currency contracts. Net realized and unrealized gains (losses) - other amounted
to $1.4 million and $11.3 million, respectively, for the three and nine months
ended September 30, 2009 compared to $(1.0) million and $(2.1) million,
respectively, for the same periods in 2008.

The primary components of the $1.4 million and $11.3 million gains for the three
and nine months ended September 30, 2009, are as follows:

Three months ended Nine months ended
September 30, 2009
September 30, 2009
Balance sheet hedge:
* foreign currency forwards, hedges on reinsurance balances and ineffective piece of Flagstone`s designated hedges on investments in subsidiaries: $0.1 million $8.8 million
* foreign currency swaps on Flagstone`s subordinated debt: $0.8 million $1.0 million
Total premium earned on other reinsurance derivatives $0.4 million $1.5 million

Interest expense

Interest expense was $2.8 million and $9.5 million, respectively, for the three
and nine months ended September 30, 2009, compared to $3.7 million and $13.7
million, respectively, for the same periods in 2008. The decrease in interest
expense for the three and nine months ended September 30, 2009, compared to the
same periods in 2008, is primarily related to the decrease in short term
interest rates from period to period and the repurchase of $11.3 million of
principal amount of the Company`s outstanding $100.0 million Notes during the
second quarter of 2008.

Flagstone shareholders` equity

At September 30, 2009, Flagstone`s shareholders' equity was $1.1 billion and
diluted book value per share was $13.20.

Regulation G

This earnings release includes diluted book value per share. This is a non-GAAP
financial measure, and a reconciliation of this measure to Flagstone`s
shareholders` equity is presented at the end of this release. The Company
believes this measure to be useful alongside comparable GAAP measures in
evaluating the Company`s financial performance as management believes the growth
in the Company`s diluted book value per share ultimately translates into growth
in the Company`s stock price.

Additional information

The Company will host a conference call on Tuesday, November 3, 2009, at 9:30
a.m. (EST) to discuss this release. Live broadcast of the conference call will
be available through the Investor Section of the Company`s website at
www.flagstonere.bm.

The Company, through its operating subsidiaries, is a global reinsurance and
insurance company that employs a focused and technical approach to the Property
Catastrophe, Property, and Specialty reinsurance and insurance businesses.
Flagstone Réassurance Suisse has received "A-" financial strength ratings from
both A.M. Best and Fitch Ratings, and "A3" ratings from Moody's Investors
Service. Island Heritage and Flagstone Reinsurance Africa have received "A-"
financial strength ratings from A.M. Best.

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 www.flagstonere.bm.

Please refer to the unaudited September 30, 2009, Financial Supplement, which
will be posted on the Company`s website for more detailed financial
information.

Consolidated Statements of Operations and Comprehensive Income (unaudited) - For the three and nine month periods ended September 30, 2009 and September 30, 2008

(expressed in thousands of U.S. dollars, except share and per share data)

For the Three Months Ended For the Nine Months Ended
September 30, 2009 September 30, 2008 September 30, 2009 September 30, 2008
REVENUES
Gross premiums written $ 174,590 $ 173,219 $ 864,784 $ 686,643
Premiums ceded (39,781 ) (21,984 ) (175,192 ) (76,433 )
Net premiums written 134,809 151,235 689,592 610,210
Change in net unearned premiums 60,708 37,406 (134,264 ) (144,545 )
Net premiums earned 195,517 188,641 555,328 465,665
Net investment income 10,779 16,056 19,672 48,031
Net realized and unrealized gains (losses) - investments 21,286 (138,677 ) 26,469 (160,428 )
Net realized and unrealized gains (losses) - other 1,373 (1,039 ) 11,273 (2,144 )
Other income 4,269 1,418 11,771 5,269
Total revenues 233,224 66,399 624,513 356,393

EXPENSES
Loss and loss adjustment expenses 80,175 199,768 214,410 295,833
Acquisition costs 35,224 27,452 99,464 78,827
General and administrative expenses 35,266 16,271 104,144 67,034
Interest expense 2,814 3,722 9,490 13,671
Net foreign exchange losses (gains) 2,390 8,331 3,125 3,262
Total expenses 155,869 255,544 430,633 458,627

Income (loss) before income taxes and interest in earnings of equity investments 77,355 (189,145 ) 193,880 (102,234 )
Provision for income tax (532 ) (585 ) (76 ) (1,892 )
Interest in loss of equity investment (370 ) (475 ) (1,048 ) (475 )
Net Income (Loss) 76,453 (190,205 ) 192,756 (104,601 )
Less: (Income) loss attributable to noncontrolling interest (9,323 ) 3,657 (22,069 ) (7,139 )
NET INCOME (LOSS) ATTRIBUTABLE TO FLAGSTONE $ 67,130 $ (186,548 ) $ 170,687 $ (111,740 )

Net income (loss) $ 76,453 $ (190,205 ) $ 192,756 $ (104,601 )
Change in currency translation adjustment (4,656 ) 5,833 2,610 1,130
Change in defined benefit pension plan obligation 480 57 159 (465 )
Comprehensive Income (Loss) 72,277 (184,315 ) 195,525 (103,936 )
Less: Comprehensive (income) loss attributable to noncontrolling interest (9,577 ) 3,657 (23,899 ) (7,139 )
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO FLAGSTONE $ 62,700 $ (180,658 ) $ 171,626 $ (111,075 )

Weighted average common shares outstanding-basic 84,004,784 85,499,283 84,711,027 85,479,861
Weighted average common shares outstanding-diluted 84,176,602 85,499,283 84,909,340 85,479,861
Basic earnings (loss) per common share $ 0.80 $ (2.18 ) $ 2.01 (1.31 )
Diluted earnings (loss) per common share $ 0.80 $ (2.18 ) $ 2.01 (1.31 )
Dividends declared per common share $ 0.04 $ 0.04 $ 0.12 0.12

Segment Reporting (unaudited) - For the three and nine month periods ended September 30, 2009 and September 30, 2008

(expressed in thousands of U.S. dollars, except percentages)

Three Months Ended September 30, 2009 Three Months Ended September 30, 2008
Reinsurance Lloyd's Insurance Inter segment Total Reinsurance Insurance Inter segment Total
Eliminations(1) Eliminations (1)

Gross premiums written $ 132,274 $ 24,356 $ 28,215 $ (10,255 ) $ 174,590 $ 164,087 $ 17,710 $ (8,578 ) $ 173,219
Premiums ceded (24,168 ) (10,243 ) (15,621 ) 10,251 (39,781 ) (18,338 ) (12,224 ) 8,578 (21,984 )
Net written premiums 108,106 14,113 12,594 (4 ) 134,809 145,749 5,486 - 151,235
Net premiums earned $ 173,408 $ 18,291 $ 3,818 $ - $ 195,517 $ 185,984 $ 2,657 $ - $ 188,641
Other related income 1,037 1,454 4,127 (2,956 ) 3,662 (326 ) 4,827 (3,219 ) 1,282
Loss and loss adjustment expenses (69,134 ) (11,012 ) (29 ) - (80,175 ) (198,082 ) (1,686 ) - (199,768 )
Acquisition costs (29,972 ) (4,648 ) (3,560 ) 2,956 (35,224 ) (27,078 ) (3,593 ) 3,219 (27,452 )
General and administrative expenses (28,237 ) (4,187 ) (2,842 ) - (35,266 ) (13,911 ) (2,360 ) - (16,271 )
Underwriting Income (Loss) $ 47,102 $ (102 ) $ 1,514 $ - $ 48,514 $ (53,413 ) $ (155 ) $ - $ (53,568 )
Loss ratio (2) 39.9 % 60.2 % 0.4 % 41.0 % 106.5 % 22.5 % 105.9 %
Acquisition cost ratio (2) 17.3 % 25.4 % 44.8 % 18.0 % 14.5 % 48.0 % 14.6 %
General and administrative expense ratio (2) 16.3 % 22.9 % 35.8 % 18.0 % 7.5 % 31.5 % 8.6 %
Combined ratio (2) 73.5 % 108.5 % 81.0 % 77.0 % 128.5 % 102.0 % 129.1 %

(1) Inter segment eliminations for 2009 relate to Flagstone Suisse quota share arrangements with Island Heritage and Lloyd's.

(2) For insurance segment all ratios calculated using expenses divided by net premiums earned plus other related income.

Nine Months Ended September 30, 2009 Nine Months Ended September 30, 2008
Reinsurance Lloyd's Insurance Inter segment Total Reinsurance Insurance Inter segment Total
Eliminations (1) Eliminations (1)

Gross premiums written $ 715,532 $ 109,949 $ 70,025 $ (30,722 ) $ 864,784 $ 653,603 $ 63,488 $ (30,448 ) $ 686,643
Premiums ceded (120,610 ) (21,767 ) (63,535 ) 30,720 (175,192 ) (38,696 ) (68,185 ) 30,448 (76,433 )
Net written premiums 594,922 88,182 6,490 (2 ) 689,592 614,907 (4,697 ) - 610,210
Net premiums earned $ 512,139 $ 38,495 $ 4,694 $ - $ 555,328 $ 454,991 $ 10,674 $ - $ 465,665
Other related income 3,541 3,887 14,815 (10,239 ) 12,004 456 8,162 (6,067 ) 2,551
Loss and loss adjustment expenses (189,279 ) (24,331 ) (800 ) - (214,410 ) (294,036 ) (1,797 ) - (295,833 )
Acquisition costs (90,867 ) (8,532 ) (10,304 ) 10,239 (99,464 ) (74,909 ) (9,985 ) 6,067 (78,827 )
General and administrative expenses (85,129 ) (11,484 ) (7,531 ) - (104,144 ) (60,731 ) (6,303 ) - (67,034 )
Underwriting Income (Loss) $ 150,405 $ (1,965 ) $ 874 $ - $ 149,314 $ 25,771 $ 751 $ - $ 26,522
Loss ratio (2) 37.0 % 63.2 % 4.1 % 38.6 % 64.6 % 9.5 % 63.5 %
Acquisition cost ratio (2) 17.7 % 22.2 % 52.8 % 17.9 % 16.5 % 53.0 % 16.9 %
General and administrative expense ratio (2) 16.6 % 29.8 % 38.6 % 18.8 % 13.3 % 33.5 % 14.4 %
Combined ratio (2) 71.3 % 115.2 % 95.5 % 75.3 % 94.4 % 96.0 % 94.8 %

(1) Inter segment eliminations for 2009 relate to Flagstone Suisse quota share arrangements with Island Heritage and Lloyd's.

(2) For insurance segment all ratios calculated using expenses divided by net premiums earned plus other related income.

Consolidated Condensed Balance Sheets as at September 30, 2009 and December 31, 2008

(expressed in thousands of U.S. dollars, except share data)

As at September 30, As at December 31,
2009 2008
(Unaudited)
ASSETS
Investments:
Fixed maturities, at fair value (Amortized cost: 2009 - $1,212,502 ; 2008 - $787,792) $ 1,250,939 $ 784,355
Short term investments, at fair value (Amortized cost: 2009 - $197,594; 2008 - $30,491) 202,711 30,413
Other investments 49,756 59,968
Total Investments 1,503,406 874,736
Cash and cash equivalents 334,730 783,705
Restricted cash 52,370 42,403
Premium balances receivable 376,584 218,287
Unearned premiums ceded 80,907 31,119
Reinsurance balances receivable 37,886 30,855
Accrued interest receivable 9,318 7,226
Receivable for investments sold 27,410 9,634
Deferred acquisition costs 67,088 44,601
Goodwill and intangibles 52,162 50,014
Other assets 102,006 123,390
Total Assets $ 2,643,867 $ 2,215,970

LIABILITIES
Loss and loss adjustment expense reserves $ 471,954 $ 411,565
Unearned premiums 459,087 270,891
Insurance and reinsurance balances payable 65,974 31,123
Payable for investments purchased 37,944 7,776
Long term debt 252,774 252,575
Other liabilities 60,173 58,577
Total Liabilities 1,347,906 1,032,507

EQUITY
Common voting shares, 300,000,000 authorized, $0.01 par value, issued and outstanding 849 848
(2009 - 84,864,844; 2008 - 84,801,732)
Common shares held in treasury, at cost (2009 - 2,000,000; 2008 - nil) (20 ) -
Additional paid-in capital 887,829 897,344
Accumulated other comprehensive loss (7,332 ) (8,271 )
Retained earnings 256,289 96,092
Total Flagstone Shareholders' Equity 1,137,615 986,013
Noncontrolling Interest in Subsidiaries 158,346 197,450
Total Equity 1,295,961 1,183,463
Total Liabilities and Equity $ 2,643,867 $ 2,215,970

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",
"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 the
Company`s common share price; the impact of the current unprecedented volatility
in the financial markets, including the duration of the crisis and the
effectiveness of governmental solutions; the weakening economy, including the
impact on our customers' businesses; fluctuations in interest rates; the effects
of corporate bankruptcies on capital markets; 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 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; the estimates
reported by cedents and brokers on pro-rata contracts and certain excess of loss
contracts where the deposit premium is not specified in the contract; the
inherent uncertainties of establishing reserves for loss and loss adjustment
expenses, 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;
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 reinsurance
industry; 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.

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 Securities and Exchange
Commission. The Company undertakes 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 speak only as of the date on which they are made.

Non-GAAP Financial Measures

In addition to the GAAP financial measures set forth in this Press Release, we
have presented "basic and diluted book value per share", which are non-GAAP
financial measures. Management uses growth in diluted book value per share as a
prime measure of the value the Company is generating for its common
shareholders, as Management believes that growth in the Company`s diluted book
value per share ultimately translates into growth in the Company`s stock price.

Basic book value per share is defined as total Flagstone`s 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 share is defined as total Flagstone`s 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 ("PSU") and Restricted Share Units ("RSU").
When the effect of securities would be anti-dilutive, these securities are
excluded from the calculation of diluted book value per share. The Warrant was
anti-dilutive and was excluded from the calculation of diluted book value per
share as at September 30, 2009 and December 31, 2008.

Book Value per Share (unaudited)

As at September 30, As at September 30,
2009 2008
($ in thousands, except share and per share data)

Flagstone Shareholders' Equity $ 1,137,615 $ 1,084,419
Potential net proceeds from assumed:
Exercise of PSU (1) - -
Exercise of RSU (1) - -
Conversion of warrant (2) - -
Diluted Flagstone Shareholders' Equity $ 1,137,615 $ 1,084,419

Common shares outstanding - end of period 82,864,844 85,346,325
Vested RSUs 205,157 152,958
Total Common shares outstanding - end of period 83,070,001 85,499,283

Potential shares to be issued:
PSUs expected to vest 2,813,585 105,822
RSUs outstanding 328,096 301,746
Conversion of warrant (2) - -
Common Shares Outstanding - Diluted 86,211,682 85,906,851

Basic book value per share $ 13.69 $ 12.68

Diluted book value per share $ 13.20 $ 12.62

(1) No proceeds due when exercised
(2) Below strike price - not dilutive

Flagstone Reinsurance Holdings Limited, Hamilton
Brenton Slade, +1-441-278-4303

Copyright Business Wire 2009