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Global Credit Research - 20 Mar 2011
New York, March 20, 2011 -- Moody's Investors Service has placed the ratings of Flagstone Reinsurance
Holdings, S.A. (Baa3 long-term issuer rating)
and its principal subsidiary Flagstone Reassurance Suisse S.A.
(A3 insurance financial strength) under review for possible downgrade.
The rating action follows a series of natural disasters in the first quarter
which is likely to result in a material loss for Flagstone. In
its review, Moody's will seek more clarity on Flagstone's
losses from these disasters and, importantly, assess the compatibility
of its strategy and risk appetite with its current ratings.
According to the rating agency, Flagstone is likely to incur material
losses from first quarter's natural disasters. Flagstone
has estimated its losses, net of reinsurance, for January's
Australian floods and February's Cyclone Yasi to be $60-80
million (5.3%-7.0% as percent of Flagstone
equity) and for February's New Zealand earthquake to be $60-90
million (5.3%-7.9% as percent of Flagstone
equity). The company has yet to disclose its loss estimates for
the March 11 earthquake in Japan but Moody's expects that the reinsurer
will incur losses from this event given its geographic risk profile.
"Moody's considers the size of the losses from the Australian
floods and New Zealand earthquake to be out of step in relation to the
limited size of the company," said Kevin Lee, a senior
credit officer at Moody's. "In the coming months,
we will review Flagstone's strategy and risk tolerance, including
its approach to allocating notional limits by geographic zones."
Previously, on December 8, 2010, Moody's had continued
the negative outlook for Flagstone's ratings because of increased
underwriting leverage, higher catastrophe exposure and a lower assessment
of capital adequacy.
Moody's added that Flagstone appears to have meaningful reinsurance
protections in place to manage losses from future catastrophes.
Nevertheless, the company's meaningful reliance on reinsurance
in order to support its underwriting strategy has its own risks,
as it exposes the company to shifts in the availability and pricing of
such protection to a somewhat greater degree than peers.
The A3 insurance financial strength rating for Flagstone Reassurance Suisse
SA reflects its strong client service orientation and moderate debt service
requirements at the holding company. These positives are tempered
by the company's limited track record (launched in December 2005),
modest scale (as one of the smallest global reinsurers) and higher underwriting
and catastrophe leverage than peers. The Baa3 issuer rating at
the ultimate parent company is based on moderate financial leverage (15%
at December 2010, including 25% equity credit for the junior
subordinated debentures) and credit support from its principal operating
subsidiary. Key financial metrics are expected to deteriorate significantly,
however, due to first quarter losses.
The following ratings have been placed under review for possible downgrade:
Flagstone Reassurance Suisse SA -- insurance financial strength
Flagstone Reinsurance Holdings, S.A. --
long term issuer rating at Baa3.
Flagstone Reinsurance Holdings SA is a global reinsurance and insurance
company that focuses on specialty, property, property catastrophe
and short-tail casualty reinsurance and insurance.
Flagstone Reinsurance Holdings, S.A. is a Luxembourg
holding company whose subsidiaries write property, property catastrophe,
and specialty lines of reinsurance and insurance worldwide. For
full year 2010, the company reported net premiums earned of $852.1
million, net income attributable to Flagstone of $97.1
million and Flagstone shareholders' equity of $1,134.7
million as of December 31, 2010.
The last rating action on Flagstone occurred on December 8, 2010
when Moody's continued the negative outlook.
The principal methodology used in rating Flagstone was Moody's Global
Rating Methodology for Reinsurers rating methodology published in July
2008. Other methodologies and factors that may have been considered
in the process of rating this issuer can also be found on Moody's website.
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
Senior Vice President
Financial Institutions Group
Moody's Investors Service
Moody's Investors Service
Moody's places ratings of Flagstone Re under review for possible downgrade
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