Market Overview

Flagstone Re Reports Third Quarter 2012 Results

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LUXEMBOURG--(BUSINESS WIRE)--

Flagstone Reinsurance Holdings, S.A. (NYSE: FSR) today announced third quarter 2012 basic book value per share of $11.64 and diluted book value per share of $11.45, down 0.4% and 0.3%, respectively, for the quarter (percentages inclusive of dividends). Net loss attributable to Flagstone's common shareholders for the three months ended September 30, 2012, was $1.3 million, or $0.02 loss per diluted share, compared to a net loss of $59.5 million or $0.85 loss per diluted share for the three months ended September 30, 2011. Net income attributable to Flagstone's common shareholders for the nine months ended September 30, 2012, was $51.3 million, or $0.72 earnings per diluted share, compared to a net loss of $241.0 million, or $3.44 loss per diluted share for the nine months ended September 30, 2011. Net loss from continuing operations for the three months ended September 30, 2012, was $7.1 million, or $0.10 loss per diluted share, compared to a net loss from continuing operations of $53.7 million, or $0.76 loss per diluted share, for the three months ended September 30, 2011. Net income from continuing operations for the nine months ended September 30, 2012, was $33.1 million, or $0.45 earnings per diluted share, compared to a net loss from continuing operations of $234.8 million, or $3.38 loss per diluted share, for the nine months ended September 30, 2011.

On August 30, 2012, the Company and Validus Holdings, Ltd. (“Validus”) jointly announced that the boards of directors of both Validus and Flagstone have approved a definitive merger agreement pursuant to which Validus will acquire all of the issued and outstanding shares of Flagstone. As of the announcement date, the transaction represented an aggregate equity value of $623.2 million and is currently expected to be completed in the fourth quarter of 2012, subject to customary closing conditions, including obtaining regulatory approvals and the approval of Flagstone's shareholders.

Except as explicitly described as held for sale or as discontinued operations, and unless otherwise noted, all discussions and amounts presented herein relate only to Flagstone's continuing operations. All prior years presented have been reclassified to conform to this new presentation.

David Brown, Flagstone's Chief Executive Officer, stated, “Flagstone's results in the third quarter were generally in line with our expectations. We were pleased to announce our agreement to combine with Validus Holdings on August 30, 2012. The transaction, which presents a significant premium and immediate value to our shareholders, was the culmination of a robust process in which our Board carefully considered a broad range of strategic alternatives. We look forward to working with Validus and anticipate completing the transaction in the fourth quarter.”

Unaudited Consolidated Condensed Statements of Operations and Comprehensive Income (Loss)
For the three and nine months ended September 30, 2012 and 2011

(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, September 30,
2012   2011 2012     2011
 
REVENUES
Gross premiums written $ 4,042 $ 92,162 $ 345,420 $ 708,965
Premiums ceded   1,338     (30,577 )   (89,846 )   (193,736 )
Net premiums written 5,380 61,585 255,574 515,229
Change in net unearned premiums   77,173     68,456     43,223     (65,515 )
Net premiums earned 82,553 130,041 298,797 449,714
Net investment income 6,130 6,167 15,063 27,665
Net realized and unrealized gains (losses) - investments 5,970 (19,592 ) 29,438 (16,726 )
Net realized and unrealized gains (losses) - other 5,589 (18,305 ) 6,982 (5,009 )
Other income   2,187     1,376     6,544     4,062  
Total revenues   102,429     99,687     356,824     459,706  
 
EXPENSES
Loss and loss adjustment expenses 60,051 131,879 181,983 531,368
Acquisition costs 21,104 31,619 65,870 95,303
General and administrative expenses 19,188 19,785 59,870 55,604
Interest expense 2,750 3,137 8,673 8,879
Net foreign exchange losses (gains)   5,859     (33,981 )   6,736     3,067  
Total expenses   108,952     152,439     323,132     694,221  
(Loss) income from continuing operations before income taxes and interest in earnings of equity investments (6,523 ) (52,752 ) 33,692 (234,515 )
(Provision) recovery for income tax (569 ) (668 ) (882 ) 405
Interest in earnings of equity investments   -     (250 )   288     (706 )
(Loss) income from continuing operations (7,092 ) (53,670 ) 33,098 (234,816 )
Income (loss) from discontinued operations, net of taxes   5,746     (5,769 )   19,366     (4,032 )
Net (loss) income (1,346 ) (59,439 ) 52,464 (238,848 )
Less: Income attributable to noncontrolling interest   -     (106 )
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