Exhibit 99.2
Flagstone Reinsurance Holdings, S.A.
INVESTOR FINANCIAL SUPPLEMENT
THIRD QUARTER 2011
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 | | 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. | 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
On October 24, 2011, the Company announced its plans to undertake a number of strategic initiatives designed to realign the Company’s strategy and core capabilities. Over the past 18 months, the Company has undertaken a thorough analysis of its underwriting strategy and has determined to increase its focus on businesses that produce the highest returns on equity, while reducing its focus on businesses that absorb capital but produce less attractive returns. Accordingly, the Company now intends to concentrate primarily on its property and property catastrophe business, as well as its highest margin short-tail specialty lines of reinsurance business. In addition, the Company will adjust its geographic diversification in order to decrease the threat of frequency risk. The Company believes that these initiatives will significantly lower its underwriting leverage. As a result of this realignment, the Company has commenced a formal process to divest its ownership positions in its Lloyd's and Island Heritage operations.
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 failure to reach an agreement and consummate the divestitures described above on acceptable terms or at all, and the timing of any divestiture; the amount of costs, fees, expenses 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, or the timing thereof; 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; 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; 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 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; our ability to continue to implement our expense reduction initiatives; the impact of 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 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. 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. 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 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 September 30, | | Nine months ended September 30, |
| | 2011 | | 2010 | | 2011 | | 2010 |
| | | | | | | | | | | | | | | | |
Gross premiums written | $ | 169,893 | | | $ | 185,649 | | | $ | 938,537 | | | $ | 955,462 | |
Net premiums written | $ | 122,188 | | | $ | 159,376 | | | $ | 668,485 | | | $ | 776,999 | |
Net premiums earned | $ | 179,236 | | | $ | 198,694 | | | $ | 601,002 | | | $ | 647,588 | |
Net investment income | $ | 6,814 | | | $ | 7,488 | | | $ | 29,321 | | | $ | 22,992 | |
Net (loss) income attributable to Flagstone | $ | (59,545) | | | $ | 37,261 | | | $ | (240,975) | | | $ | 82,034 | |
Net operating (loss) income (1) | $ | (55,869) | | | $ | 6,491 | | | $ | (216,752) | | | $ | 38,620 | |
Comprehensive (loss) income attributable to Flagstone | $ | (68,160) | | | $ | 42,696 | | | $ | (245,998) | | | $ | 82,691 | |
Cash flow (used in) provided by operating activities | $ | (3,097) | | | $ | 121,219 | | | $ | (98,338) | | | $ | 232,689 | |
Loss and loss adjustment expense reserves | $ | 1,081,400 | | | $ | 683,278 | | | $ | 1,081,400 | | | $ | 683,278 | |
Flagstone shareholders’ equity | $ | 876,998 | | | $ | 1,224,053 | | | $ | 876,998 | | | $ | 1,224,053 | |
| | | | | | | | | | | | | | | | |
PER COMMON SHARE AND COMMON SHARE DATA | | | | | | | | | | | | | | | |
Net (loss) income attributable to Flagstone per common share - Basic | $ | (0.85) | | | $ | 0.48 | | | $ | (3.44) | | | $ | 1.03 | |
Net (loss) income attributable to Flagstone per common share - Diluted | $ | (0.85) | | | $ | 0.48 | | | $ | (3.44) | | | $ | 1.02 | |
Diluted net operating (loss) income per common share (1) | $ | (0.79) | | | $ | 0.08 | | | $ | (3.09) | | | $ | 0.48 | |
Weighted average common shares outstanding - Basic | | 70,380,852 | | | | 77,631,156 | | | | 70,041,621 | | | | 79,871,964 | |
Weighted average common shares outstanding - Diluted | | 70,380,852 | | | | 77,772,847 | | | | 70,041,621 | | | | 80,071,159 | |
Basic book value per common share | $ | 12.46 | | | $ | 15.93 | | | $ | 12.46 | | | $ | 15.93 | |
Diluted book value per common share | $ | 12.11 | | | $ | 15.10 | | | $ | 12.11 | | | $ | 15.10 | |
Diluted book value per common share plus accumulated distributions (2) | $ | 12.79 | | | $ | 15.62 | | | $ | 12.79 | | | $ | 15.62 | |
Distributions declared per common share (2) | $ | 0.04 | | | $ | 0.04 | | | $ | 0.12 | | | $ | 0.12 | |
| | | | | | | | | | | | | | | | |
FINANCIAL RATIOS | | | | | | | | | | | | | | | |
Change in diluted book value per share (3) | | (7.1) | % | | | 4.4 | % | | | (21.1) | % | | | 8.8 | % |
| | | | | | | | | | | | | | | | |
Loss ratio | | 94.6 | % | | | 59.9 | % | | | 105.6 | % | | | 61.5 | % |
Acquisition cost ratio | | 26.2 | % | | | 15.4 | % | | | 22.9 | % | | | 18.4 | % |
General and administrative expense ratio | | 15.7 | % | | | 24.8 | % | | | 13.7 | % | | | 20.6 | % |
Combined ratio | | 136.5 | % | | | 100.1 | % | | | 142.2 | % | | | 100.5 | % |
| | | | | | | | | | | | | | | | |
INVESTMENT DATA | | | | | | | | | | | | | | | |
Total assets | $ | 2,940,220 | | | $ | 2,897,473 | | | $ | 2,940,220 | | | $ | 2,897,473 | |
Total cash and investments (4) | $ | 1,802,433 | | | $ | 2,075,144 | | | $ | 1,802,433 | | | $ | 2,075,144 | |
| | | | | | | | | | | | | | | | |
(1)Net operating 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 payable for investments purchased. |
FLAGSTONE REINSURANCE HOLDINGS, S.A.
CONSOLIDATED STATEMENTS OF (LOSS) INCOME - QUARTERLY (Unaudited) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended | | | Nine months ended | | Year ended |
| | September 30, 2011 | | June 30, 2011 | | March 31, 2011 | | December 31, 2010 | | September 30, 2010 | | September 30, 2011 | | September 30, 2010 | | December 31, 2010 |
REVENUES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross premiums written | $ | 169,893 | | | $ | 346,493 | | | $ | 422,151 | | | $ | 142,388 | | | $ | 185,649 | | | $ | 938,537 | | | $ | 955,462 | | | $ | 1,097,850 | |
Premiums ceded | | (47,705) | | | | (82,356) | | | | (139,991) | | | | (35,533) | | | | (26,273) | | | | (270,052) | | | | (178,463) | | | | (213,996) | |
Net premiums written | | 122,188 | | | | 264,137 | | | | 282,160 | | | | 106,855 | | | | 159,376 | | | | 668,485 | | | | 776,999 | | | | 883,854 | |
Change in net unearned premiums | | 57,048 | | | | (92,860) | | | | (31,671) | | | | 97,641 | | | | 39,318 | | | | (67,483) | | | | (129,411) | | | | (31,770) | |
Net premiums earned | | 179,236 | | | | 171,277 | | | | 250,489 | | | | 204,496 | | | | 198,694 | | | | 601,002 | | | | 647,588 | | | | 852,084 | |
Net investment income | | 6,814 | | | | 13,075 | | | | 9,432 | | | | 8,490 | | | | 7,488 | | | | 29,321 | | | | 22,992 | | | | 31,482 | |
Net realized and unrealized (losses) gains - investments | | (19,292) | | | | (7,761) | | | | 10,904 | | | | 6,464 | | | | 40,165 | | | | (16,149) | | | | 37,305 | | | | 43,769 | |
Net realized and unrealized (losses) gains - other | | (18,305) | | | | 13,986 | | | | (690) | | | | 3,072 | | | | 7,677 | | | | (5,009) | | | | 11,369 | | | | 14,441 | |
Other income | | 5,214 | | | | 2,520 | | | | 4,611 | | | | 6,188 | | | | 1,785 | | | | 12,345 | | | | 19,357 | | | | 25,545 | |
Total revenues | | 153,667 | | | | 193,097 | | | | 274,746 | | | | 228,710 | | | | 255,809 | | | | 621,510 | | | | 738,611 | | | | 967,321 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
EXPENSES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loss and loss adjustment expenses | | 169,511 | | | | 115,195 | | | | 349,749 | | | | 131,805 | | | | 119,089 | | | | 634,455 | | | | 398,331 | | | | 530,136 | |
Acquisition costs | | 47,012 | | | | 39,057 | | | | 51,756 | | | | 45,784 | | | | 30,615 | | | | 137,825 | | | | 119,036 | | | | 164,820 | |
General and administrative expenses | | 26,072 | | | | 28,753 | | | | 28,098 | | | | 33,807 | | | | 46,001 | | | | 82,923 | | | | 120,541 | | | | 154,348 | |
Stock based compensation expense | | 1,999 | | | | 432 | | | | (3,005) | | | | 4,651 | | | | 3,337 | | | | (574) | | | | 12,694 | | | | 17,435 | |
Interest expense | | 3,236 | | | | 2,994 | | | | 2,946 | | | | 2,603 | | | | 2,690 | | | | 9,176 | | | | 7,749 | | | | 10,352 | |
Net foreign exchanges (gains) losses | | (33,921) | | | | 27,041 | | | | 9,945 | | | | (541) | | | | 17,072 | | | | 3,065 | | | | 5,260 | | | | 4,719 | |
Total expenses | | 213,909 | | | | 213,472 | | | | 439,489 | | | | 218,109 | | | | 218,804 | | | | 866,870 | | | | 663,611 | | | | 881,720 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Loss) income before income taxes and interest in earnings of equity investments | | (60,242) | | | | (20,375) | | | | (164,743) | | | | 10,601 | | | | 37,005 | | | | (245,360) | | | | 75,000 | | | | 85,601 | |
Recovery (provision) for income tax | | 1,053 | | | | 1,533 | | | | 4,632 | | | | 8,309 | | | | (966) | | | | 7,218 | | | | (4,256) | | | | 4,053 | |
Interest in earnings of equity investments | | (250) | | | | (171) | | | | (285) | | | | (334) | | | | (364) | | | | (706) | | | | (906) | | | | (1,240) | |
Net (loss) income | | (59,439) | | | | (19,013) | | | | (160,396) | | | | 18,576 | | | | 35,675 | | | | (238,848) | | | | 69,838 | | | | 88,414 | |
Less: (Income) loss attributable to noncontrolling interest | | (106) | | | | (1,197) | | | | (824) | | | | (3,526) | | | | 1,586 | | | | (2,127) | | | | 12,196 | | | | 8,670 | |
NET (LOSS) INCOME ATTRIBUTABLE TO FLAGSTONE | $ | (59,545) | | | $ | (20,210) | | | $ | (161,220) | | | $ | 15,050 | | | $ | 37,261 | | | $ | (240,975) | | | $ | 82,034 | | | $ | 97,084 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net (loss) income | $ | (59,439) | | | $ | (19,013) | | | $ | (160,396) | | | $ | 18,576 | | | $ | 35,675 | | | $ | (238,848) | | | $ | 69,838 | | | $ | 88,414 | |
Change in currency translation adjustment | | (8,677) | | | | 873 | | | | 2,877 | | | | 136 | | | | 5,352 | | | | (4,927) | | | | 471 | | | | 607 | |
Change in defined benefit pension plan obligation | | 62 | | | | (158) | | | | - | | | | 5 | | | | 83 | | | | (96) | | | | 186 | | | | 191 | |
Comprehensive (loss) income | | (68,054) | | | | (18,298) | | | | (157,519) | | | | 18,717 | | | | 41,110 | | | | (243,871) | | | | 70,495 | | | | 89,212 | |
Less: Comprehensive (loss) income attributable to noncontrolling interest | | (106) | | | | (1,197) | | | | (824) | | | | (3,526) | | | | 1,586 | | | | (2,127) | | | | 12,196 | | | | 8,670 | |
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO FLAGSTONE | $ | (68,160) | | | $ | (19,495) | | | $ | (158,343) | | | $ | 15,191 | | | $ | 42,696 | | | $ | (245,998) | | | $ | 82,691 | | | $ | 97,882 | |
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KEY RATIOS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loss ratio | | 94.6 | % | | | 67.3 | % | | | 139.6 | % | | | 64.5 | % | | | 59.9 | % | | | 105.6 | % | | | 61.5 | % | | | 62.2 | % |
Acquisition cost ratio | | 26.2 | % | | | 22.8 | % | | | 20.7 | % | | | 22.4 | % | | | 15.4 | % | | | 22.9 | % | | | 18.4 | % | | | 19.3 | % |
General and administrative expense ratio (1) | | 15.7 | % | | | 17.0 | % | | | 10.0 | % | | | 18.8 | % | | | 24.8 | % | | | 13.7 | % | | | 20.6 | % | | | 20.1 | % |
Combined ratio | | 136.5 | % | | | 107.1 | % | | | 170.3 | % | | | 105.7 | % | | | 100.1 | % | | | 142.2 | % | | | 100.5 | % | | | 101.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
PER COMMON SHARE DATA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average common shares outstanding - Basic | | 70,380,852 | | | | 70,380,852 | | | | 69,351,852 | | | | 75,050,491 | | | | 77,631,156 | | | | 70,041,621 | | | | 79,871,964 | | | | 78,656,688 | |
Weighted average common shares outstanding - Diluted (2) | | 70,380,852 | | | | 70,380,852 | | | | 69,351,852 | | | | 75,249,804 | | | | 77,772,847 | | | | 70,041,621 | | | | 80,071,159 | | | | 78,880,590 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net (loss) income attributable to Flagstone per common share - Basic | $ | (0.85) | | | $ | (0.29) | | | $ | (2.32) | | | $ | 0.20 | | | $ | 0.48 | | | $ | (3.44) | | | $ | 1.03 | | | $ | 1.23 | |
Net (loss) income attributable to Flagstone per common share - Diluted | $ | (0.85) | | | $ | (0.29) | | | $ | (2.32) | | | $ | 0.20 | | | $ | 0.48 | | | $ | (3.44) | | | $ | 1.02 | | | $ | 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 September 30, 2011 | | Three months ended September 30, 2010 |
| | | Reinsurance | | Lloyd's | | Island Heritage | | Inter segment Eliminations (1) | | Total | | Reinsurance | | Lloyd's | | Island Heritage | | Inter segment Eliminations (1) | | Total |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross premiums written | | $ | 107,044 | | | $ | 41,415 | | | $ | 36,317 | | | $ | (14,883) | | | $ | 169,893 | | | $ | 129,701 | | | $ | 35,567 | | | $ | 29,479 | | | $ | (9,098) | | | $ | 185,649 | |
Premiums ceded | | | (30,401) | | | | (7,763) | | | | (24,424) | | | | 14,883 | | | | (47,705) | | | | (13,565) | | | | (4,812) | | | | (16,994) | | | | 9,098 | | | | (26,273) | |
Net premiums written | | | 76,643 | | | | 33,652 | | | | 11,893 | | | | - | | | | 122,188 | | | | 116,136 | | | | 30,755 | | | | 12,485 | | | | - | | | | 159,376 | |
Net premiums earned | | $ | 140,304 | | | $ | 35,953 | | | $ | 2,979 | | | $ | - | | | $ | 179,236 | | | $ | 161,671 | | | $ | 36,921 | | | $ | 102 | | | $ | - | | | $ | 198,694 | |
Other related income | | | 554 | | | | 649 | | | | 7,027 | | | | (3,416) | | | | 4,814 | | | | 295 | | | | 845 | | | | 5,677 | | | | (4,408) | | | | 2,409 | |
Loss and loss adjustment expenses | | | (137,161) | | | | (31,358) | | | | (992) | | | | - | | | | (169,511) | | | | (95,780) | | | | (23,466) | | | | 157 | | | | - | | | | (119,089) | |
Acquisition costs | | | (35,226) | | | | (9,517) | | | | (5,685) | | | | 3,416 | | | | (47,012) | | | | (21,949) | | | | (8,961) | | | | (4,113) | | | | 4,408 | | | | (30,615) | |
General and administrative expenses (2) | | | (20,369) | | | | (4,935) | | | | (2,767) | | | | - | | | | (28,071) | | | | (40,094) | | | | (6,333) | | | | (2,911) | | | | - | | | | (49,338) | |
Underwriting (loss) income | | $ | (51,898) | | | $ | (9,208) | | | $ | 562 | | | $ | - | | | $ | (60,544) | | | $ | 4,143 | | | $ | (994) | | | $ | (1,088) | | | $ | - | | | $ | 2,061 | |
Loss ratio (3) | | | 97.8 | % | | | 87.2 | % | | | 9.9 | % | | | | | | | 94.6 | % | | | 59.2 | % | | | 63.6 | % | | | (2.7) | % | | | | | | | 59.9 | % |
Acquisition cost ratio (3) | | | 25.1 | % | | | 26.5 | % | | | 56.8 | % | | | | | | | 26.2 | % | | | 13.6 | % | | | 24.3 | % | | | 71.2 | % | | | | | | | 15.4 | % |
General and administrative expense ratio (3) | | | 14.5 | % | | | 13.7 | % | | | 27.7 | % | | | | | | | 15.7 | % | | | 24.8 | % | | | 17.2 | % | | | 50.4 | % | | | | | | | 24.8 | % |
Combined ratio (3) | | | 137.4 | % | | | 127.4 | % | | | 94.4 | % | | | | | | | 136.5 | % | | | 97.6 | % | | | 105.1 | % | | | 118.9 | % | | | | | | | 100.1 | % |
Total assets | | $ | 2,443,024 | | | $ | 355,392 | | | $ | 141,804 | | | | | | | $ | 2,940,220 | | | $ | 2,536,580 | | | $ | 259,362 | | | $ | 101,531 | | | | | | | $ | 2,897,473 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine months ended September 30, 2011 | | Nine months ended September 30, 2010 |
| | | Reinsurance | | Lloyd's | | Island Heritage | | Inter segment Eliminations (1) | | Total | | Reinsurance | | Lloyd's | | Island Heritage | | Inter segment Eliminations (1) | | Total |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross premiums written | | $ | 748,010 | | | $ | 141,818 | | | $ | 87,754 | | | $ | (39,045) | | | $ | 938,537 | | | $ | 768,095 | | | $ | 148,529 | | | $ | 70,557 | | | $ | (31,719) | | | $ | 955,462 | |
Premiums ceded | | | (193,572) | | | | (30,815) | | | | (84,710) | | | | 39,045 | | | | (270,052) | | | | (120,395) | | | | (23,901) | | | | (65,886) | | | | 31,719 | | | | (178,463) | |
Net premiums written | | | 554,438 | | | | 111,003 | | | | 3,044 | | | | - | | | | 668,485 | | | | 647,700 | | | | 124,628 | | | | 4,671 | | | | - | | | | 776,999 | |
Net premiums earned | | $ | 481,988 | | | $ | 109,711 | | | $ | 9,303 | | | $ | - | | | $ | 601,002 | | | $ | 532,296 | | | $ | 110,219 | | | $ | 5,073 | | | $ | - | | | $ | 647,588 | |
Other related income | | | 1,920 | | | | 2,293 | | | | 19,097 | | | | (12,107) | | | | 11,203 | | | | 3,260 | | | | 10,976 | | | | 16,822 | | | | (11,983) | | | | 19,075 | |
Loss and loss adjustment expenses | | | (537,439) | | | | (95,269) | | | | (1,747) | | | | - | | | | (634,455) | | | | (305,773) | | | | (92,073) | | | | (485) | | | | - | | | | (398,331) | |
Acquisition costs | | | (107,174) | | | | (27,289) | | | | (15,469) | | | | 12,107 | | | | (137,825) | | | | (92,176) | | | | (26,349) | | | | (12,494) | | | | 11,983 | | | | (119,036) | |
General and administrative expenses (2) | | | (58,982) | | | | (16,017) | | | | (7,350) | | | | - | | | | (82,349) | | | | (108,199) | | | | (17,890) | | | | (7,146) | | | | - | | | | (133,235) | |
Underwriting (loss) income | | $ | (219,687) | | | $ | (26,571) | | | $ | 3,834 | | | $ | - | | | $ | (242,424) | | | $ | 29,408 | | | $ | (15,117) | | | $ | 1,770 | | | $ | - | | | $ | 16,061 | |
Loss ratio (3) | | | 111.5 | % | | | 86.8 | % | | | 6.2 | % | | | | | | | 105.6 | % | | | 57.4 | % | | | 83.5 | % | | | 2.2 | % | | | | | | | 61.5 | % |
Acquisition cost ratio (3) | | | 22.2 | % | | | 24.9 | % | | | 54.5 | % | | | | | | | 22.9 | % | | | 17.3 | % | | | 23.9 | % | | | 57.1 | % | | | | | | | 18.4 | % |
General and administrative expense ratio (3) | | | 12.2 | % | | | 14.6 | % | | | 25.9 | % | | | | | | | 13.7 | % | | | 20.3 | % | | | 16.2 | % | | | 32.6 | % | | | | | | | 20.6 | % |
Combined ratio (3) | | | 145.9 | % | | | 126.3 | % | | | 86.6 | % | | | | | | | 142.2 | % | | | 95.0 | % | | | 123.6 | % | | | 91.9 | % | | | | | | | 100.5 | % |
Total assets | | $ | 2,443,024 | | | $ | 355,392 | | | $ | 141,804 | | | | | | | $ | 2,940,220 | | | $ | 2,536,580 | | | $ | 259,362 | | | $ | 101,531 | | | | | | | $ | 2,897,473 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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 September 30, |
| | | 2011 | | 2010 |
| | | Gross premiums written | | Percentage of total | | Gross premiums written | | Percentage of total |
Line of Business | | | | | | | | | | | |
Reinsurance and Lloyd's (1) | | | | | | | | | | | |
| | Property catastrophe | $ | 45,153 | | 26.6 | % | | $ | 54,075 | | 29.1 | % |
| | Property | | 36,431 | | 21.4 | % | | | 52,011 | | 28.0 | % |
| | Short-tail specialty and casualty | | 51,992 | | 30.6 | % | | | 50,084 | | 27.0 | % |
Island Heritage | | | | | | | | | | | |
| | Insurance | | 36,317 | | 21.4 | % | | | 29,479 | | 15.9 | % |
Total | $ | 169,893 | | 100.0 | % | | $ | 185,649 | | 100.0 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Nine months ended September 30, |
| | | 2011 | | 2010 |
| | | Gross premiums written | | Percentage of total | | Gross premiums written | | Percentage of total |
Line of Business | | | | | | | | | | | |
Reinsurance and Lloyd's (1) | | | | | | | | | | | |
| | Property catastrophe | $ | 417,306 | | 44.5 | % | | $ | 454,071 | | 47.5 | % |
| | Property | | 200,174 | | 21.3 | % | | | 210,580 | | 22.0 | % |
| | Short-tail specialty and casualty | | 233,303 | | 24.8 | % | | | 220,254 | | 23.1 | % |
Island Heritage | | | | | | | | | | | |
| | Insurance | | 87,754 | | 9.4 | % | | | 70,557 | | 7.4 | % |
Total | $ | 938,537 | | 100.0 | % | | $ | 955,462 | | 100.0 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Three months ended September 30, |
| | | 2011 | | 2010 |
| | | Gross premiums written | | Percentage of total | | Gross premiums written | | Percentage of total |
Geographic area of risk insured (2) | | | | | | | | | | | |
Caribbean (3) | $ | 39,174 | | 23.1 | % | | $ | 33,444 | | 18.0 | % |
Europe | | 19,241 | | 11.3 | % | | | 14,083 | | 7.6 | % |
Japan and Australasia | | 19,108 | | 11.2 | % | | | 11,799 | | 6.4 | % |
North America | | 31,128 | | 18.3 | % | | | 68,181 | | 36.7 | % |
Worldwide risks (4) | | 37,368 | | 22.0 | % | | | 33,114 | | 17.8 | % |
Other | | 23,874 | | 14.1 | % | | | 25,028 | | 13.5 | % |
Total | $ | 169,893 | | 100.0 | % | | $ | 185,649 | | 100.0 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Nine months ended September 30, |
| | | 2011 | | 2010 |
| | | Gross premiums written | | Percentage of total | | Gross premiums written | | Percentage of total |
Geographic area of risk insured (2) | | | | | | | | | | | |
Caribbean (3) | $ | 98,087 | | 10.4 | % | | $ | 83,218 | | 8.7 | % |
Europe | | 119,824 | | 12.8 | % | | | 112,778 | | 11.8 | % |
Japan and Australasia | | 92,733 | | 9.9 | % | | | 57,301 | | 6.0 | % |
North America | | 345,688 | | 36.8 | % | | | 421,701 | | 44.2 | % |
Worldwide risks (4) | | 212,224 | | 22.6 | % | | | 212,434 | | 22.2 | % |
Other | | 69,981 | | 7.5 | % | | | 68,030 | | 7.1 | % |
Total | $ | 938,537 | | 100.0 | % | | $ | 955,462 | | 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 |
| | September 30, 2011 | | June 30, 2011 | | March 31, 2011 | | December 31, 2010 | | September 30, 2010 |
ASSETS | | | | | | | | | | | | | | | | | | | |
Investments: | | | | | | | | | | | | | | | | | | | |
Fixed maturity investments, at fair value | $ | 1,301,431 | | | $ | 1,363,471 | | | $ | 1,358,230 | | | $ | 1,473,863 | | | $ | 1,563,469 | |
Short term investments, at fair value | | 12,368 | | | | 15,712 | | | | 18,046 | | | | 14,251 | | | | 19,469 | |
Other investments | | 127,815 | | | | 127,411 | | | | 121,721 | | | | 120,047 | | | | 108,855 | |
Total investments | | 1,441,614 | | | | 1,506,594 | | | | 1,497,997 | | | | 1,608,160 | | | | 1,691,793 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | 308,906 | | | | 275,984 | | | | 397,090 | | | | 345,705 | | | | 308,962 | |
Restricted cash | | 59,682 | | | | 54,736 | | | | 55,871 | | | | 43,413 | | | | 51,266 | |
Premium balances receivable | | 421,841 | | | | 534,228 | | | | 438,426 | | | | 318,455 | | | | 403,861 | |
Unearned premiums ceded | | 97,875 | | | | 136,295 | | | | 147,827 | | | | 68,827 | | | | 90,084 | |
Reinsurance recoverable | | 245,595 | | | | 180,832 | | | | 90,017 | | | | 28,183 | | | | 27,834 | |
Accrued interest receivable | | 12,974 | | | | 13,626 | | | | 14,139 | | | | 15,599 | | | | 14,007 | |
Receivable for investments sold | | 4,353 | | | | 203,257 | | | | 75,574 | | | | 1,795 | | | | 26,321 | |
Deferred acquisition costs | | 72,756 | | | | 88,342 | | | | 73,905 | | | | 65,917 | | | | 74,779 | |
Funds withheld | | 28,570 | | | | 30,721 | | | | 25,256 | | | | 25,934 | | | | 25,806 | |
Goodwill | | 16,381 | | | | 16,476 | | | | 16,474 | | | | 16,381 | | | | 16,405 | |
Intangible assets | | 31,025 | | | | 32,089 | | | | 32,256 | | | | 31,549 | | | | 31,963 | |
Asset held for sale | | - | | | | - | | | | 2,300 | | | | 2,300 | | | | 11,000 | |
Other assets | | 198,648 | | | | 170,416 | | | | 158,530 | | | | 146,984 | | | | 123,392 | |
Total assets | $ | 2,940,220 | | | $ | 3,243,596 | | | $ | 3,025,662 | | | $ | 2,719,202 | | | $ | 2,897,473 | |
| | | | | | | | | | | | | | | | | | | | |
LIABILITIES | | | | | | | | | | | | | | | | | | | |
Loss and loss adjustment expense reserves | $ | 1,081,400 | | | $ | 1,068,204 | | | $ | 1,047,674 | | | $ | 721,314 | | | $ | 683,278 | |
Unearned premiums | | 474,186 | | | | 577,737 | | | | 492,748 | | | | 378,804 | | | | 497,011 | |
Insurance and reinsurance balances payable | | 126,330 | | | | 126,579 | | | | 140,845 | | | | 82,134 | | | | 78,430 | |
Payable for investments purchased | | 25,096 | | | | 176,750 | | | | 18,919 | | | | 3,106 | | | | 17,205 | |
Long term debt | | 251,167 | | | | 252,602 | | | | 252,174 | | | | 251,122 | | | | 251,472 | |
Other liabilities | | 88,153 | | | | 77,425 | | | | 88,311 | | | | 86,127 | | | | 87,688 | |
Total liabilities | | 2,046,332 | | | | 2,279,297 | | | | 2,040,671 | | | | 1,522,607 | | | | 1,615,084 | |
| | | | | | | | | | | | | | | | | | | | |
EQUITY | | | | | | | | | | | | | | | | | | | |
Common voting shares | | 845 | | | | 845 | | | | 845 | | | | 845 | | | | 850 | |
Common shares held in treasury, at cost | | (161,701) | | | | (161,701) | | | | (162,146) | | | | (178,718) | | | | (92,177) | |
Additional paid-in capital | | 875,481 | | | | 877,227 | | | | 880,066 | | | | 904,235 | | | | 922,200 | |
Accumulated other comprehensive loss | | (11,201) | | | | (2,586) | | | | (3,301) | | | | (6,178) | | | | (6,319) | |
Retained earnings | | 173,574 | | | | 233,119 | | | | 253,329 | | | | 414,549 | | | | 399,499 | |
Total Flagstone shareholders' equity | | 876,998 | | | | 946,904 | | | | 968,793 | | | | 1,134,733 | | | | 1,224,053 | |
Noncontrolling interest in subsidiaries (1) | | 16,890 | | | | 17,395 | | | | 16,198 | | | | 61,862 | | | | 58,336 | |
Total equity | | 893,888 | | | | 964,299 | | | | 984,991 | | | | 1,196,595 | | | | 1,282,389 | |
Total liabilities and equity | $ | 2,940,220 | | | $ | 3,243,596 | | | $ | 3,025,662 | | | $ | 2,719,202 | | | $ | 2,897,473 | |
| | | | | | | | | | | | | | | | | | | | |
Basic book value per common share | $ | 12.46 | | | $ | 13.45 | | | $ | 13.77 | | | $ | 16.48 | | | $ | 15.93 | |
Diluted book value per common share | $ | 12.11 | | | $ | 13.08 | | | $ | 13.34 | | | $ | 15.51 | | | $ | 15.10 | |
Debt to total capitalization (2) | | 22.3 | % | | | 21.1 | % | | | 20.7 | % | | | 18.1 | % | | | 17.0 | % |
| | | | | | | | | | | | | | | | | | | | |
(1) Noncontrolling interest in subsidiaries includes Island Heritage, Mont Fort ($nil as of March 25, 2011). |
(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 | September 30, 2011 | | June 30, 2011 | | March 31, 2011 | | December 31, 2010 | | September 30, 2010 |
| U.S. government and agency securities | $ | 240,595 | | 16.7 | % | | $ | 247,239 | | 16.4 | % | | $ | 214,748 | | 14.3 | % | | $ | 271,836 | | 16.9 | % | | $ | 272,798 | | 16.1 | % |
| U.S. states and political subdivisions | | - | | 0.0 | % | | | - | | 0.0 | % | | | 26 | | 0.0 | % | | | 92 | | 0.0 | % | | | 1,605 | | 0.1 | % |
| Other foreign governments | | 251,382 | | 17.4 | % | | | 265,582 | | 17.6 | % | | | 322,494 | | 21.5 | % | | | 285,925 | | 17.8 | % | | | 288,502 | | 17.1 | % |
| Corporates | | 518,688 | | 36.0 | % | | | 532,087 | | 35.4 | % | | | 527,896 | | 35.3 | % | | | 602,544 | | 37.5 | % | | | 614,299 | | 36.3 | % |
| Mortgage-backed securities | | 215,942 | | 15.0 | % | | | 238,439 | | 15.8 | % | | | 196,969 | | 13.2 | % | | | 222,857 | | 13.9 | % | | | 238,701 | | 14.1 | % |
| Asset-backed securities | | 74,824 | | 5.2 | % | | | 80,124 | | 5.3 | % | | | 96,097 | | 6.4 | % | | | 90,608 | | 5.6 | % | | | 147,564 | | 8.7 | % |
| | Total fixed maturities | | 1,301,431 | | 90.3 | % | | | 1,363,471 | | 90.5 | % | | | 1,358,230 | | 90.7 | % | | | 1,473,862 | | 91.7 | % | | | 1,563,469 | | 92.4 | % |
| Short term investments | | 12,368 | | 0.8 | % | | | 15,712 | | 1.0 | % | | | 18,046 | | 1.2 | % | | | 14,251 | | 0.9 | % | | | 19,469 | | 1.2 | % |
| | Total | | 1,313,799 | | 91.1 | % | | | 1,379,183 | | 91.5 | % | | | 1,376,276 | | 91.9 | % | | | 1,488,113 | | 92.6 | % | | | 1,582,938 | | 93.6 | % |
| Other investments | | 127,815 | | 8.9 | % | | | 127,411 | | 8.5 | % | | | 121,721 | | 8.1 | % | | | 120,047 | | 7.4 | % | | | 108,855 | | 6.4 | % |
| | Total | $ | 1,441,614 | | 100.0 | % | | $ | 1,506,594 | | 100.0 | % | | $ | 1,497,997 | | 100.0 | % | | $ | 1,608,160 | | 100.0 | % | | $ | 1,691,793 | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CREDIT QUALITY OF FIXED MATURITIES AND SHORT TERM INVESTMENTS | | | | | | | | | | | | | | | | | | | | | |
| AAA | $ | 800,610 | | 60.9 | % | | $ | 850,203 | | 61.6 | % | | $ | 832,871 | | 60.5 | % | | $ | 903,230 | | 60.7 | % | | $ | 991,396 | | 62.6 | % |
| AA | | 164,043 | | 12.5 | % | | | 164,308 | | 12.0 | % | | | 197,275 | | 14.3 | % | | | 193,302 | | 13 | % | | | 208,192 | | 13.2 | % |
| A | | 222,778 | | 17.0 | % | | | 242,844 | | 17.6 | % | | | 223,549 | | 16.3 | % | | | 262,086 | | 17.6 | % | | | 270,537 | | 17.1 | % |
| BBB | | 126,368 | | 9.6 | % | | | 121,828 | | 8.8 | % | | | 122,581 | | 8.9 | % | | | 129,495 | | 8.7 | % | | | 112,813 | | 7.1 | % |
| | Total | $ | 1,313,799 | | 100.0 | % | | $ | 1,379,183 | | 100.0 | % | | $ | 1,376,276 | | 100.0 | % | | $ | 1,488,113 | | 100.0 | % | | $ | 1,582,938 | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| MATURITY PROFILE OF FIXED MATURITIES AND SHORT TERM INVESTMENTS | | | | | | | | | | | | | | | | | | | | | |
| Within one year | $ | 45,879 | | 3.5 | % | | $ | 69,297 | | 5.1 | % | | $ | 50,149 | | 3.6 | % | | $ | 39,909 | | 2.7 | % | | $ | 46,198 | | 2.9 | % |
| From one to five years | | 822,460 | | 62.6 | % | | | 844,519 | | 61.2 | % | | | 697,135 | | 50.7 | % | | | 836,825 | | 56.2 | % | | | 865,384 | | 54.7 | % |
| From five to ten years | | 114,047 | | 8.7 | % | | | 107,790 | | 7.8 | % | | | 180,556 | | 13.1 | % | | | 202,136 | | 13.6 | % | | | 185,685 | | 11.7 | % |
| Above ten years | | 40,647 | | 3.1 | % | | | 39,014 | | 2.8 | % | | | 155,370 | | 11.3 | % | | | 95,778 | | 6.4 | % | | | 99,406 | | 6.3 | % |
| Asset-backed and mortgage-backed securities | | 290,766 | | 22.1 | % | | | 318,563 | | 23.1 | % | | | 293,066 | | 21.3 | % | | | 313,465 | | 21.1 | % | | | 386,265 | | 24.4 | % |
| | Total | $ | 1,313,799 | | 100.0 | % | | $ | 1,379,183 | | 100.0 | % | | $ | 1,376,276 | | 100.0 | % | | $ | 1,488,113 | | 100.0 | % | | $ | 1,582,938 | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Average credit quality | | AA+ | | | | | | AA+ | | | | | | AA+ | | | | | | AA+ | | | | | | AA+ | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| OTHER INVESTMENTS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Investment funds | $ | 60,846 | | | | | $ | 60,138 | | | | | $ | 46,331 | | | | | $ | 39,993 | | | | | $ | 28,471 | | | |
| Catastrophe bonds | | 64,485 | | | | | | 64,436 | | | | | | 72,327 | | | | | | 76,691 | | | | | | 76,798 | | | |
| Equity securities | | 110 | | | | | | 213 | | | | | | 268 | | | | | | 283 | | | | | | 172 | | | |
| Other investments | | 2,374 | | | | | | 2,624 | | | | | | 2,795 | | | | | | 3,080 | | | | | | 3,414 | | | |
| | Total | $ | 127,815 | | | | | $ | 127,411 | | | | | $ | 121,721 | | | | | $ | 120,047 | | | | | $ | 108,855 | | | |
FLAGSTONE REINSURANCE HOLDINGS, S.A.
RESERVE FOR LOSSES AND LOSS EXPENSES: PAID TO INCURRED ANALYSIS (Unaudited) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended September 30, 2011 | | Three months ended June 30, 2011 | | Three months ended March 31, 2011 |
Loss and loss adjustment expense reserves | | Gross | | Recoveries | | Net | | Gross | | Recoveries | | Net | | Gross | | Recoveries | | Net |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning of period | | $ | 1,068,204 | | | $ | (180,832) | | | $ | 887,372 | | | $ | 1,047,674 | | | $ | (90,017) | | | $ | 957,657 | | | $ | 721,314 | | | $ | (28,183) | | | $ | 693,131 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Incurred | | | 241,721 | | | | (72,210) | | | | 169,511 | | | | 209,089 | | | | (93,894) | | | | 115,195 | | | | 413,219 | | | | (63,470) | | | | 349,749 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other (1) | | | (46,816) | | | | (1,760) | | | | (48,576) | | | | 29,224 | | | | (4,714) | | | | 24,510 | | | | 5,573 | | | | (2,052) | | | | 3,521 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Paid | | | (181,709) | | | | 9,207 | | | | (172,502) | | | | (217,783) | | | | 7,793 | | | | (209,990) | | | | (92,432) | | | | 3,688 | | | | (88,744) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
End of period | | $ | 1,081,400 | | | $ | (245,595) | | | $ | 835,805 | | | $ | 1,068,204 | | | $ | (180,832) | | | $ | 887,372 | | | $ | 1,047,674 | | | $ | (90,017) | | | $ | 957,657 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Paid to incurred percentage | | | 75.2 | % | | | 12.8 | % | | | 101.8 | % | | | 104.2 | % | | | 8.3 | % | | | 182.3 | % | | | 22.4 | % | | | 5.8 | % | | | 25.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended December 31, 2010 | | Three months ended September 30, 2010 | | | | | | | | | | | | |
Loss and loss adjustment expense reserves | | Gross | | Recoveries | | Net | | Gross | | Recoveries | | Net | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning of period | | $ | 683,278 | | | $ | (27,834) | | | $ | 655,444 | | | $ | 602,451 | | | $ | (22,589) | | | $ | 579,862 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Incurred | | | 135,129 | | | | (3,325) | | | | 131,804 | | | | 124,636 | | | | (5,547) | | | | 119,089 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other (1) | | | 6,345 | | | | 393 | | | | 6,738 | | | | 22,586 | | | | (3,068) | | | | 19,518 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Paid | | | (103,438) | | | | 2,583 | | | | (100,855) | | | | (66,395) | | | | 3,370 | | | | (63,025) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
End of period | | $ | 721,314 | | | $ | (28,183) | | | $ | 693,131 | | | $ | 683,278 | | | $ | (27,834) | | | $ | 655,444 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Paid to incurred percentage | | | 76.5 | % | | | 77.7 | % | | | 76.5 | % | | | 53.3 | % | | | 60.8 | % | | | 52.9 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) This amount represents the movement in reserves as a result of foreign exchange movements. | |
FLAGSTONE REINSURANCE HOLDINGS, S.A.
CAPITALIZATION (Unaudited) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | As at | |
| | | September 30, 2011 | | June 30, 2011 | | March 31, 2011 | | December 31, 2010 | | September 30, 2010 |
| | | | | | | | | | | | | | | | | | | | | |
Long term debt | | $ | 251,167 | | | $ | 252,602 | | | $ | 252,174 | | | $ | 251,122 | | | $ | 251,472 | |
Flagstone shareholders’ equity | | | 876,998 | | | | 946,904 | | | | 968,793 | | | | 1,134,733 | | | | 1,224,053 | |
Total capitalization | | $ | 1,128,165 | | | $ | 1,199,506 | | | $ | 1,220,967 | | | $ | 1,385,855 | | | $ | 1,475,525 | |
| | | | | | | | | | | | | | | | | | | | | |
Leverage ratio: | | | | | | | | | | | | | | | | | | | | |
Debt to total capitalization | | | 22.3 | % | | | 21.1 | % | | | 20.7 | % | | | 18.1 | % | | | 17.0 | % |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | September 30, 2011 | | September 30, 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 | | | $ | 427,200 | | | $ | 450,000 | | | $ | 365,089 | |
Letter of credit facility (f) | | | | | | $ | 200,000 | | | $ | 30,277 | | | $ | 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 September 30, 2011, was secured by $506.6 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 September 30, 2011, was secured by $36.2 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 September 30, | | Nine months ended September 30, |
| | | 2011 | | 2010 | | 2011 | | 2010 |
| | | | | | | | | | | | | |
Net (loss) income attributable to Flagstone | | $ | (59,545) | | $ | 37,261 | | $ | (240,975) | | $ | 82,034 |
| | | | | | | | | | | | | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | | | | | | | | | | | | |
Weighted average common shares outstanding - Basic (1) | | | 70,380,852 | | | 77,631,156 | | | 70,041,621 | | | 79,871,964 |
| | | | | | | | | | | | | |
Dilutive share equivalents: | | | | | | | | | | | | |
Weighted average unvested restricted share units (2) | | | - | | | 141,691 | | | - | | | 199,195 |
Weighted average common shares outstanding - Diluted | | | 70,380,852 | | | 77,772,847 | | | 70,041,621 | | | 80,071,159 |
| | | | | | | | | | | | | |
EARNINGS (LOSS) PER COMMON SHARE | | | | | | | | | | | | |
Basic | | $ | (0.85) | | $ | 0.48 | | $ | (3.44) | | $ | 1.03 |
Diluted | | $ | (0.85) | | $ | 0.48 | | $ | (3.44) | | $ | 1.02 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
(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 |
| | | September 30, 2011 | | June 30, 2011 | | March 31, 2011 | | December 31, 2010 | | September 30, 2010 |
DILUTIVE COMMON SHARES AS IF OUTSTANDING | | | | | | | | | | | | | | | | | | | | |
Flagstone shareholders’ equity | | $ | 876,998 | | | $ | 946,904 | | | $ | 968,793 | | | $ | 1,134,733 | | | $ | 1,224,053 | |
Cumulative distributions paid per outstanding common share (1) | | | 0.68 | | | | 0.64 | | | | 0.60 | | | | 0.56 | | | | 0.52 | |
Common shares outstanding | | | 70,058,168 | | | | 70,058,168 | | | | 70,054,875 | | | | 68,585,588 | | | | 76,588,153 | |
add in: | | | | | | | | | | | | | | | | | | | | |
vested restricted share units | | | 322,684 | | | | 322,684 | | | | 325,977 | | | | 262,013 | | | | 262,013 | |
Total common shares and common share equivalents outstanding | | | 70,380,852 | | | | 70,380,852 | | | | 70,380,852 | | | | 68,847,601 | | | | 76,850,166 | |
| | | | | | | | | | | | | | | | | | | | | |
Basic book value per common share | | $ | 12.46 | | | $ | 13.45 | | | $ | 13.77 | | | $ | 16.48 | | | $ | 15.93 | |
| | | | | | | | | | | | | | | | | | | | |
Basic book value per common share plus accumulated distributions (1) (2) | | $ | 13.14 | | | $ | 14.09 | | | $ | 14.37 | | | $ | 17.04 | | | $ | 16.45 | |
| | | | | | | | | | | | | | | | | | | | | |
Diluted book value on an "as if converted basis" | | | | | | | | | | | | | | | | | | | | |
Flagstone shareholders' equity | | $ | 876,998 | | | $ | 946,904 | | | $ | 968,793 | | | $ | 1,134,733 | | | $ | 1,224,053 | |
add in: | | | | | | | | | | | | | | | | | | | | |
proceeds on exercise of warrant (3) | | | - | | | | - | | | | - | | | | - | | | | - | |
Adjusted Flagstone shareholders' equity | | $ | 876,998 | | | $ | 946,904 | | | $ | 968,793 | | | $ | 1,134,733 | | | $ | 1,224,053 | |
| | | | | | | | | | | | | | | | | | | | | |
Cumulative distributions paid per outstanding common share (1) | | $ | 0.68 | | | $ | 0.64 | | | $ | 0.60 | | | $ | 0.56 | | | $ | 0.52 | |
| | | | | | | | | | | | | | | | | | | | | |
As if converted diluted shares outstanding | | | | | | | | | | | | | | | | | | | | |
Common shares and share equivalents outstanding | | | 70,380,852 | | | | 70,380,852 | | | | 70,380,852 | | | | 68,847,601 | | | | 76,850,166 | |
add in: | | | | | | | | | | | | | | | | | | | | |
vesting of performance share units | | | 1,762,442 | | | | 1,762,442 | | | | 1,965,091 | | | | 3,998,558 | | | | 3,945,058 | |
vesting of restricted share units | | | 275,320 | | | | 270,150 | | | | 288,950 | | | | 315,200 | | | | 293,925 | |
Diluted common shares outstanding | | | 72,418,614 | | | | 72,413,444 | | | | 72,634,893 | | | | 73,161,359 | | | | 81,089,149 | |
| | | | | | | | | | | | | | | | | | | | | |
Diluted book value per common share | | $ | 12.11 | | | $ | 13.08 | | | $ | 13.34 | | | $ | 15.51 | | | $ | 15.10 | |
| | | | | | | | | | | | | | | | | | | | |
Diluted book value per common share plus accumulated distributions (1) (2) | | $ | 12.79 | | | $ | 13.72 | | | $ | 13.94 | | | $ | 16.07 | | | $ | 15.62 | |
| | | | | | | | | | | | | | | | | | | | | |
Change in diluted book value per common share: Quarter | | | (7.4) | % | | | (2.0) | % | | | (14.0) | % | | | 2.7 | % | | | 4.3 | % |
Change in diluted book value per common share adjusted for distributions: Quarter (1) (4) | | | (7.1) | % | | | (1.7) | % | | | (13.7) | % | | | 3.0 | % | | | 4.4 | % |
Change in diluted book value per common share adjusted for distributions: Rolling 12 months (1) (4) | | | (21.1) | % | | | (15.2) | % | | | (13.7) | % | | | 12.1 | % | | | 15.3 | % |
Annualized change in diluted book value per common share adjusted for distributions since inception | | | 4.6 | % | | | 6.2 | % | | | 6.8 | % | | | 10.3 | % | | | 10.2 | % |
| | | | | | | | | | | | | | | | | | | | | |
(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.
NON-GAAP FINANCIAL MEASURE RECONCILIATION
NET OPERATING INCOME (Unaudited)
| | | Three months ended September 30, | | Nine months ended September 30, |
| | | 2011 | | 2010 | | 2011 | | 2010 |
| | | | | | | | | | | | | | | | | |
| Net (loss) income attributable to Flagstone | | $ | (59,545) | | | $ | 37,261 | | | $ | (240,975) | | | $ | 82,034 | |
| | | | | | | | | | | | | | | | | |
| ADJUSTMENTS FOR: | | | | | | | | | | | | | | | | |
| Net realized and unrealized losses (gains) - investments | | | 19,292 | | | | (40,165) | | | | 16,149 | | | | (37,305) | |
| Net realized and unrealized losses (gains) - other | | | 18,305 | | | | (7,677) | | | | 5,009 | | | | (11,369) | |
| Net foreign exchange (gains) losses | | | (33,921) | | | | 17,072 | | | | 3,065 | | | | 5,260 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| NET OPERATING (LOSS) INCOME | | $ | (55,869) | | | $ | 6,491 | | | $ | (216,752) | | | $ | 38,620 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| AVERAGE FLAGSTONE SHAREHOLDERS’ EQUITY | | $ | 911,951 | | | $ | 1,210,178 | | | $ | 1,005,866 | | | $ | 1,217,535 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| ANNUALIZED NET OPERATING RETURN ON AVERAGE FLAGSTONE SHAREHOLDERS’ EQUITY | | | (24.5) | % | | | 2.1 | % | | | (28.7) | % | | | 4.2 | % |
