(Source: Business Wire)
Flagstone Reinsurance Holdings Limited (NYSE:FSR) today announced second quarter 2009 basic book value per share of $12.87 and diluted book value per share of $12.42, up 7.1% and 7.2%, respectively, for the quarter (percentages inclusive of dividends). Net income attributable to Flagstone's common shareholders for the quarter ended June 30, 2009, was $67.8 million, or $0.80 per diluted share, compared to $41.9 million, or $0.49 per diluted share, for the quarter ended June 30, 2008. Net income available to common shareholders for the six months ended June 30, 2009 was $103.6 million, or $1.21 per diluted share, compared to $74.8 million, or $0.87 per diluted share, for the six months ended June 30, 2008.
Operating highlights for the periods ended June 30, 2009 and 2008 included the following:
Three months ended June 30, Six months ended June 30, 2009 2008 % change 2009 2008 % change (Expressed in millions of U.S. dollars, except % changes and ratios) Operating income ((1)) $ 57.9 $ 41.8 38.6 % $ 89.2 $ 92.6 (3.7 )% Gross premiums written $ 328.7 $ 271.2 21.2 % $ 690.2 $ 513.4 34.4 % Net premiums earned $ 187.0 $ 141.8 31.9 % $ 359.8 $ 277.0 29.9 % Combined ratio 68.7 % 76.0 % 74.3 % 71.5 % Total return on investments 1.2 % 0.4 % 1.1 % 0.6 % -------------------------------------------------------------------------------
1Operating 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.
"We are very pleased with our financial result for the second quarter of 2009," said David Brown, Flagstone Chief Executive Officer. "Flagstone's solid performance this quarter is the result of the continued strength of our underwriting, expansion in several lines of business and geographical diversification. In particular, this diversification accounted for a loss ratio in the quarter of 30.8% and a combined ratio of 68.7%, which produced an underwriting profit of $61.9 million for the quarter. Our ability to generate quality business on a global basis allows us to continue adding significant premium leverage to our business and achieve outstanding operating performance. Note that our Lloyds platform, Marlborough Underwriting Agency Limited, is only beginning to impact the top line, as our fresh corporate name ramps up. Premiums written at Marlborough for the half year were a quite satisfactory $85.6 million, in line with plan."
Mr. Brown continued, "Our mid-year renewals were attractive on a risk-adjusted basis and we were able to strategically allocate our capital to the best priced pieces of business. Flagstone's North American gross aggregate exposure was flat and our premiums were up approximately 5% despite renewing less proportional business in the quarter and writing more excess of loss. Florida pricing in particular was up approximately 15% on average, an attractive level given the appearance of capacity in the market at the last moment."
"I am pleased by the significant increases we saw this quarter in our book value," said Mark Byrne, Flagstone Chairman. "Flagstone's underwriting and overall results remain strong, especially considering the relatively minor contribution from our defensive investment portfolio in the quarter. Given the attractive level of rates globally in the lines we target, and our ability to generate and select attractive business and leverage our underwriting capital, we are confident that Flagstone is well-positioned for future growth and profitability."
"We are also excited by the prospects of our recently opened representative office in Brazil," added Mr. Byrne. "Operating within the Lloyd's offices in Rio, this office will be able to access Brazil's growing and attractive market. We anticipate that this will begin to impact our portfolio of business in the second half of 2009."
Summary of unaudited consolidated financial data for the periods is as follows: Three Months Ended June 30, Six Months Ended June 30, 2009 2008 2009 2008 (Expressed in thousands of U.S. dollars, except for share data and ratios) Gross premiums written $ 328,709 $ 271,178 $ 690,194 $ 513,424 Net premiums written $ 268,967 $ 232,743 $ 554,783 $ 458,975 Net premiums earned $ 186,976 $ 141,767 $ 359,811 $ 277,024 Net investment income $ 10,646 $ 13,279 $ 8,893 $ 31,975 Loss and loss adjustment expenses $ 57,641 $ 56,298 $ 134,235 $ 96,065 Net income attributable to Flagstone $ 67,814 $ 41,948 $ 103,557 $ 74,808 Total Flagstone shareholders' equity $ 1,094,779 $ 1,280,184 $ 1,094,779 $ 1,280,184 Combined ratio ((1)) 68.7 % 76.0 % 74.3 % 71.5 % Basic earnings per share $ 0.80 $ 0.49 $ 1.22 $ 0.88 Diluted earnings per share ((2)) $ 0.80 $ 0.49 $ 1.21 $ 0.87 Basic book value per share $ 12.87 $ 14.97 $ 12.87 $ 14.97 Diluted book value per share $ 12.42 $ 14.53 $ 12.42 $ 14.53 Change in basic book value per share ((3)) 7.1 % 3.3 % 11.3 % 6.2 % Change in diluted book value per share ((3)) 7.2 % 3.4 % 10.4 % 5.3 % -------------------------------------------------------------------------------
(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 June 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 2,786,585 PSU's expected to vest under the PSU plan as at June 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 our reinsurance segment in the three and six months ended June 30, 2009 were $279.5 million and $583.3 million, respectively, compared to $265.9 million and $489.5 million, respectively, for the same periods in 2008, an increase in gross premiums written of $13.6 and $93.8 million, or 5.1% and 19.2%, respectively. The increase was mainly due to rate level increases on catastrophe exposed treaties in both North America and International and the contribution of Flagstone Africa and Flagstone Alliance, neither of which were Flagstone subsidiaries in 2008, totaling $28.7 million.
The gross premiums written in the second quarter of 2009 include $191.8 million for property catastrophe, $44.2 million for other property and $43.4 million for specialty, compared to $204.0 million, $19.1 million and $42.8 million, respectively, for the same quarter in 2008.
Reinsurance premiums ceded for the three months ended June 30, 2009 and 2008, were $28.9 million and $15.0 million (10.3% and 5.6% of gross reinsurance premiums written), respectively, representing an increase of $13.9 million. Reinsurance premiums ceded for the six months ended June 30, 2009 and 2008 were $96.5 million and $20.4 million (16.5% and 4.2% of gross reinsurance premiums written), respectively, representing an increase of $76.1 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.
As the levels of net premiums written increase, the levels of net premiums earned also increase. Reinsurance net premiums earned were $172.1 million for the three months ended June 30, 2009, compared to $140.4 million for the three months ended June 30, 2008, representing an increase of $31.7 million, or 22.6%. Reinsurance net premiums earned were $338.7 million for the six months ended June 30, 2009, compared to $269.0 million for the same period in 2008, representing an increase of $69.7 million, or 25.9%. The increases are primarily due to higher levels of premium writings.
Flagstone's reinsurance segment reported a combined ratio of 64.7% for the second quarter of 2009 compared to 75.3% for the second quarter of 2008. The combined ratio for the six months ended June 2009 was 70.3% compared to 70.9% for the same period in 2008.
Loss and loss adjustment expenses were $48.9 million for the second quarter of 2009, representing a loss ratio of 28.4% compared to $56.2 million and a loss ratio of 40.0% for the same period in 2008. The decrease in the loss ratio fromthe second 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 we had incurred losses on Chinese winter storms ($14.4 million).Based on updated estimates provided by clients and brokers, we have recorded net favorable developments for prior period loss events of $10.8 million, related to small releases on several events.
Loss and loss adjustment expenses were $120.1 for the six months ended June 30, 2009, representing a loss ratio of 35.5%, compared to $96.0 million and a loss ratio of 35.7% for the same period in 2008.
Flagstone's acquisition cost ratio was 19.5% for the second quarter of 2009, compared to 19.2% for the same period in 2008. The acquisition cost ratio for the six months ended June 30, 2009 was 18.0%, compared to 17.8% for the same period in 2008.
General and administrative expenses for the second quarter of 2009 were $28.8 million compared to $22.7 million for the same period in 2008.General and administrative expenses were $56.9 million for the six months ended June 30, 2009 compared to $46.8 million for the same period in 2008. This increase is primarily due to increased costs associated with the acquisitions of Flagstone Africa and Flagstone Alliance.
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 six months ended June 30, 2009 amounted to $0.1 million and $1.9 million, respectively. Due to the start up nature of the 2009 year of account for Syndicate 1861, the level of earned income is slowly increasing, which is placing strain on the underwriting result as the Company has incurred expenses for the full quarter. In addition, 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 six months ended June 30, 2009, were $36.6 million and $85.6 million, respectively, and consist primarily of property and specialty lines.
Premiums ceded for the three and six months ended June 30, 2009 were $6.4 million and $11.5 million, respectively (17.5% and 13.4% 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 it 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 totaled $13.8 million and $20.2 million for the three and six months ended June 30, 2009, 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.
Other related income, derived from services provided to syndicates and third parties, totaled $0.4 million and $2.4 million for the three and six months ended June 30, 2009, respectively.
Loss and loss adjustment expenses amounted to $8.0 million and $13.3 million for the three and six months ended June 30, 2009, respectively. There were no significant loss events recorded during the three and six months ended June 30, 2009.
Acquisition costs totaled $2.8 million and $3.9 million for the three and six months ended June 30, 2009, respectively, for an acquisition cost ratio of 20.7% and 19.2%, respectively.
General and administrative expenses for the three and six months ended June 30, 2009 were $3.5 million and $7.3 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 loss for the second quarter ended June 30, 2009, amounted to $0.3 million compared to $1.0 million for same period in 2008. For the six months ended June 30, 2009, underwriting (loss) income totaled $(0.6) million compared to $0.9 million for the same period in 2008.
Gross premiums written were $25.1 million and $41.8 million for the three and six months ended June 30, 2009, respectively, compared to $26.7 million and $45.8 million for the same periods ended June 30, 2008, respectively.
