(Source: 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 )%
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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 )%
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(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 fromthe 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.
