form10q.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q
 
þ   Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2011
 
OR
 
o  Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ________________to ________________
 
Commission file number 001-33364 
Flagstone Reinsurance Holdings, S.A.
(Exact name of registrant as specified in its charter)
 
Luxembourg
  
98-0481623
(State or Other Jurisdiction of
Incorporation or Organization)
  
(I.R.S. Employer
Identification No.)

37 Val St André
 L-1128 Luxembourg, Grand Duchy of Luxembourg
(Address of principal executive offices)

+352 273 515 30
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Common Shares, par value 1 cent per share
Name of exchange on which registered:
New York Stock Exchange
Bermuda Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  
Yes    þ     No  o
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  o    
Accelerated filer þ     
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company  o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o       No  þ
 
As of August 2, 2011, the Registrant had  70,058,168 common voting shares outstanding, net of treasury shares with a par value of  $0.01 per share.


 
 
 

FLAGSTONE REINSURANCE HOLDINGS, S.A.
INDEX TO FORM 10-Q

     
Page
     
       
   
       
   
1
       
   
2
       
   
3
       
   
5
       
   
6
       
 
26
       
 
51
       
 
55
       
     
       
 
56
       
 
56
       
 
56
       
 
56
       
 
56
       
 
56
       
 
56
       
 
56

 
 
PART I − FINANCIAL INFORMATION

Item 1. Financial Statements

FLAGSTONE REINSURANCE HOLDINGS, S.A.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of U.S. dollars, except share data)


 
As at June 30,
  
As at December 31,
   
2011 
    
2010 
ASSETS
          
Investments:
          
Fixed maturities, at fair value (Amortized cost: 2011 - $1,301,597; 2010 - $1,433,868)
$
 1,363,471 
  
$
 1,473,862 
Short term investments, at fair value (Amortized cost: 2011 - $15,713; 2010 - $14,254)
  
 15,712 
    
 14,251 
Equity investments, at fair value (Cost: 2011 - $275; 2010 - $7,931)
  
 213 
    
 283 
Other investments
  
 127,198 
    
 119,764 
Total investments
  
 1,506,594 
    
 1,608,160 
Cash and cash equivalents
  
 275,984 
    
 345,705 
Restricted cash
  
 54,736 
    
 43,413 
Premium balances receivable
  
 534,228 
    
 318,455 
Unearned premiums ceded
  
 136,295 
    
 68,827 
Reinsurance recoverable
  
 180,832 
    
 28,183 
Accrued interest receivable
  
 13,626 
    
 15,599 
Receivable for investments sold
  
 203,257 
    
 1,795 
Deferred acquisition costs
  
 88,342 
    
 65,917 
Funds withheld
  
 30,721 
    
 25,934 
Goodwill
  
 16,476 
    
 16,381 
Intangible assets
  
 32,089 
    
 31,549 
Asset held for sale
  
 - 
    
 2,300 
Other assets
  
 170,416 
    
 146,984 
Total assets
$
 3,243,596 
  
$
 2,719,202 
           
LIABILITIES
          
Loss and loss adjustment expense reserves
$
 1,068,204 
  
$
 721,314 
Unearned premiums
  
 577,737 
    
 378,804 
Insurance and reinsurance balances payable
  
 126,579 
    
 82,134 
Payable for investments purchased
  
 176,750 
    
 3,106 
Long term debt
  
 252,602 
    
 251,122 
Other liabilities
  
 77,425 
    
 86,127 
Total liabilities
  
 2,279,297 
    
 1,522,607 
           
EQUITY
          
Common voting shares, 300,000,000 authorized, $0.01 par value, issued (2011 - 84,464,259; 2010 - 84,474,758) and outstanding (2011 - 70,058,168; 2010 - 68,585,588)
  
 845 
    
 845 
Common shares held in treasury, at cost (2011 - 14,406,091; 2010 - 15,889,170)
  
 (161,701)
    
 (178,718)
Additional paid-in capital
  
 877,227 
    
 904,235 
Accumulated other comprehensive loss
  
 (2,586)
    
 (6,178)
Retained earnings
  
 233,119 
    
 414,549 
Total Flagstone shareholders' equity
  
 946,904 
    
 1,134,733 
Noncontrolling interest in subsidiaries
  
 17,395 
    
 61,862 
Total equity
  
 964,299 
    
 1,196,595 
Total liabilities and equity
$
 3,243,596 
  
$
 2,719,202 
 
The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of the unaudited condensed consolidated financial statements.

 

 
1
 
FLAGSTONE REINSURANCE HOLDINGS, S.A.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in thousands of U.S. dollars, except share and per share data)

 
For the three months ended
  
For the six months ended
 
June 30,
  
June 30,
 
 
2011 
    
2010 
    
2011 
    
2010 
 
                     
 REVENUES
                     
 Gross premiums written  
$
 346,493 
  
$
 369,611 
  
$
 768,644 
  
$
 769,813 
 Premiums ceded  
  
 (82,356)
    
 (75,769)
    
 (222,347)
    
 (152,190)
 Net premiums written
 
 264,137 
    
 293,842 
    
 546,297 
    
 617,623 
 Change in net unearned premiums  
  
 (92,860)
    
 (61,763)
    
 (124,531)
    
 (168,729)
 Net premiums earned
 
 171,277 
    
 232,079 
    
 421,766 
    
 448,894 
 Net investment income
  
 13,075 
    
 8,219 
    
 22,507 
    
 15,504 
 Net realized and unrealized (losses) gains - investments
  
 (7,761)
    
 (12,671)
    
 3,143 
    
 (2,860)
 Net realized and unrealized gains (losses) - other
  
 13,986 
    
 (1,966)
    
 13,296 
    
 3,692 
 Other income  
  
 2,520 
    
 6,531 
    
 7,131 
    
 17,572 
 Total revenues
 
 193,097 
    
 232,192 
    
 467,843 
    
 482,802 
 
                     
 EXPENSES
                     
 Loss and loss adjustment expenses  
  
 115,195 
    
 151,863 
    
 464,944 
    
 279,242 
 Acquisition costs
 
 39,057 
    
 45,584 
    
 90,813 
    
 88,421 
 General and administrative expenses
 
 29,185 
    
 42,722 
    
 54,278 
    
 83,897 
 Interest expense
 
 2,994 
    
 2,545 
    
 5,940 
    
 5,059 
 Net foreign exchange losses (gains)
  
 27,041 
    
 (7,856)
    
 36,986 
    
 (11,812)
 Total expenses
  
 213,472 
    
 234,858 
    
 652,961 
    
 444,807 
 (Loss) income before income taxes and interest in earnings of equity investments
  
 (20,375)
    
 (2,666)
    
 (185,118)
    
 37,995 
 Recovery (provision) for income tax
  
 1,533 
    
 (438)
    
 6,165 
    
 (3,290)
 Interest in earnings of equity investments  
  
 (171)
    
 (283)
    
 (456)
    
 (542)
 Net (loss) income
  
 (19,013)
    
 (3,387)
    
 (179,409)
    
 34,163 
 Less: (Income) loss attributable to noncontrolling interest
  
 (1,197)
    
 16,656 
    
 (2,021)
    
 10,610 
 NET (LOSS) INCOME ATTRIBUTABLE TO FLAGSTONE
$
 (20,210)
  
$
 13,269 
  
$
 (181,430)
  
$
 44,773 
 
                     
 Net (loss) income
$
 (19,013)
  
$
 (3,387)
  
$
 (179,409)
  
$
 34,163 
 Change in currency translation adjustment  
  
 873 
    
 (1,184)
    
 3,750 
    
 (4,881)
 Change in defined benefit pension plan obligation
 
 (158)
    
 (397)
    
 (158)
    
 103 
 Comprehensive (loss) income
  
 (18,298)
    
 (4,968)
    
 (175,817)
    
 29,385 
 Less: Comprehensive (income) loss attributable to noncontrolling interest
  
 (1,197)
    
 16,656 
    
 (2,021)
    
 10,610 
 COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO FLAGSTONE
$
 (19,495)
  
$
 11,688 
  
$
 (177,838)
  
$
 39,995 
 
                     
 Weighted average common shares outstanding—Basic
 
 70,380,852 
    
 79,479,918 
    
 69,869,195 
    
 81,010,939 
 Weighted average common shares outstanding—Diluted
 
 70,380,852 
    
 79,613,131 
    
 69,869,195 
    
 81,205,844 
 Net (loss) income attributable to Flagstone per common share—Basic
$
 (0.29)
  
$
 0.17 
  
$
 (2.60)
  
$
 0.55 
 Net (loss) income attributable to Flagstone per common share—Diluted
$
 (0.29)
  
$
 0.17 
  
$
 (2.60)
  
$
 0.55 
 Distributions declared per common share (1)
$
 0.04 
  
$
 0.04 
  
$
 0.08 
  
$
 0.08 
 
                     
 (1) 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.

The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of the unaudited condensed consolidated financial statements.

 

 
2
 

 
 FLAGSTONE REINSURANCE HOLDINGS, S.A.
 (Expressed in thousands of U.S. dollars)
 
                                             
 
         
 Flagstone Shareholders' Equity
      
 For the six months ended June 30, 2011
 Total equity
  
Comprehensive (loss) income
  
 Retained earnings
  
 Accumulated other comprehensive loss
  
 Common voting shares
    
Treasury shares
  
 Additional paid-in capital
  
 Noncontrolling interest in subsidiaries
 
                                             
  Beginning balance
$
 1,196,595 
  
$
 - 
  
$
 414,549 
  
$
 (6,178)
  
$
 845 
  
$
 (178,718)
  
$
 904,235 
  
$
 61,862 
  Repurchase of preferred shares
 
 (46,488)
                                        
 (46,488)
  Comprehensive income:
                                             
     Net (loss) income
 
 (179,409)
    
 (179,409)
    
 (181,430)
                            
 2,021 
     Other comprehensive income:
                                             
       Change in currency translation adjustment
 
 3,750 
    
 3,750 
          
 3,750 
                        
       Defined benefit pension plan obligation
 
 (158)
    
 (158)
          
 (158)
                        
  Comprehensive (loss) income  
  
 (175,817)
  
$
 (175,817)
                                    
  Stock based compensation
 
 (2,573)
                                  
 (2,573)
      
  Stock compensation exercised from treasury
  
 - 
                            
 17,017 
    
 (17,017)
      
  Distributions declared per common share (1)
  
 (5,604)
                                  
 (5,604)
      
  Other
  
 (1,814)
                                  
 (1,814)
      
  Ending balance
$
 964,299 
        
$
 233,119 
  
$
 (2,586)
  
$
 845 
  
$
 (161,701)
  
$
 877,227 
  
$
 17,395 
 
                                             
 (1) 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.

The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of the unaudited condensed consolidated financial statements.

 

 
3


 FLAGSTONE REINSURANCE HOLDINGS, S.A.
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 (Expressed in thousands of U.S. dollars)
 
                                             
 
           
 Flagstone Shareholders' Equity
      
 For the six months ended June 30, 2010
 Total equity
  
 Comprehensive income
  
 Retained earnings
  
 Accumulated other comprehensive loss
  
 Common voting shares
    
Treasury shares
  
 Additional paid-in capital
  
 Noncontrolling interest in subsidiaries
 
                                             
 Beginning balance
$
 1,365,814 
  
$
 - 
  
$
 324,347 
  
$
 (6,976)
  
$
 850 
  
$
 (19,750)
  
$
 912,547 
  
$
 154,796 
 Redemption of preferred shares
  
 (32,000)
                                        
 (32,000)
 Comprehensive income:
                                             
     Net income
  
 34,163 
    
 34,163 
    
 44,773 
                            
 (10,610)
     Other comprehensive income:
                                             
       Change in currency translation adjustment
 
 (4,881)
    
 (4,881)
          
 (4,881)
                        
       Defined benefit pension plan obligation
 
 103 
    
 103 
          
 103 
                        
 Comprehensive income  
  
 29,385 
  
$
 29,385 
                                    
 Stock based compensation
  
 9,774 
                                  
 9,774 
      
 Subsidiary stock based compensation
  
 (271)
                                        
 (271)
 Shares repurchased and held in treasury
  
 (57,602)
                            
 (57,602)
            
 Distributions declared per common share(1)
  
 (11,004)
          
 (6,882)
                            
 (4,122)
 Ending balance
$
 1,304,096 
        
$
 362,238 
  
$
 (11,754)
  
$
 850 
  
$
 (77,352)
  
$
 922,321 
  
$
 107,793 
 
                                             
(1) 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.

The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of the unaudited condensed consolidated financial statements.

 

 
4

 FLAGSTONE REINSURANCE HOLDINGS, S.A.
  (Expressed in thousands of U.S. dollars)
  
          
  
For the six months ended June 30,
 
 
2011 
    
2010 
 
         
 Cash flows provided by (used in) operating activities:
         
 Net (loss) income
$
 (179,409)
  
$
 34,163 
 Adjustments to reconcile net income (loss) to net cash provided by operating activities:
        
 Net realized and unrealized gains
  
 (16,439)
    
 (832)
 Net unrealized foreign exchange losses
  
 2,947 
    
 1,394 
 Depreciation and amortization expense
  
 3,142 
    
 4,047 
 Share based compensation (recovery) expense
  
 (2,573)
    
 9,357 
 Interest in earnings of equity investments
  
 456 
    
 542 
 Accretion/amortization on fixed maturity investments
  
 (1,808)
    
 516 
 Changes in assets and liabilities, excluding net assets acquired:
         
 Premium balances receivable
  
 (212,208)
    
 (227,762)
 Unearned premiums ceded
  
 (67,180)
    
 (68,321)
 Reinsurance recoverable
  
 (152,094)
    
 (4,938)
 Deferred acquisition costs
  
 (22,514)
    
 (24,302)
 Funds withheld
  
 (4,780)
    
 (5,388)
 Loss and loss adjustment expense reserves
  
 344,102 
    
 131,860 
 Unearned premiums
  
 199,173 
    
 228,984 
 Insurance and reinsurance balances payable
  
 44,411 
    
 38,704 
 Other changes in assets and liabilities, net
  
 (30,467)
    
 (6,554)
 Net cash (used in) provided by operating activities
  
 (95,241)
    
 111,470 
  
          
 Cash flows (used in) provided by investing activities:
         
 Net cash received (paid)  in acquisition (disposal) of subsidiaries
  
 1,948 
    
 - 
 Purchases of fixed maturity investments
  
 (520,808)
    
 (2,501,150)
 Sales and maturities of fixed maturity investments
  
 661,901 
    
 2,467,359 
 Purchases of other investments
  
 (17,907)
    
 (58,798)
 Sales and maturities of other investments
  
 (28,767)
    
 44,849 
 Purchases of fixed assets
  
 (5,617)
    
 (2,518)
 Change in restricted cash
  
 (11,323)
    
 61,174 
 Net cash provided by investing activities
  
 79,427 
    
 10,916 
  
          
 Cash flows (used in) provided by financing activities:
         
 Shares repurchased and held in treasury
  
 - 
    
 (57,602)
 Repurchase of noncontrolling interest
  
 (46,488)
    
 (32,000)
 Distributions paid per common share (1)
  
 (5,602)
    
 (6,439)
 Other
  
 (179)
    
 413 
 Net cash used in financing activities
  
 (52,269)
    
 (95,628)
  
          
 Effect of foreign exchange rate on cash
 
 (1,638)
    
 (8,355)
  
          
 (Decrease) increase in cash and cash equivalents
  
 (69,721)
    
 18,403 
 Cash and cash equivalents - beginning of year
  
 345,705 
    
 352,185 
 Cash and cash equivalents - end of period
$
 275,984 
  
$
 370,588 
  
          
 Supplemental cash flow information:
         
 Receivable for investments sold
$
 203,257 
  
$
 19,443 
 Payable for investments purchased
$
 176,750 
  
$
 17,915 
 Interest paid
$
 2,358 
  
$
 4,552 
  
          
 (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.

The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of the unaudited condensed consolidated financial statements.

 

 
5
FLAGSTONE REINSURANCE HOLDINGS, S.A.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables expressed in thousands of U.S. dollars, except for share amounts, per share amounts and percentages)



1.    ORGANIZATION

Flagstone Reinsurance Holdings, S.A. (“Flagstone” or the “Company”) is a holding company incorporated as a société anonyme under the laws of Luxembourg. On May 14, 2010, the Company’s shareholders approved the redomestication to change the Company’s jurisdiction of incorporation from Bermuda to Luxembourg and the Company thereby discontinued its existence as a Bermuda company as provided in Section 132G of The Companies Act 1981 of Bermuda and continued its existence as a société anonyme under the laws of Luxembourg effective May 17, 2010 (the “Redomestication”).  As a result of the Redomestication, the Company changed its name from Flagstone Reinsurance Holdings Limited to Flagstone Reinsurance Holdings, S.A. The Company was originally incorporated on October 4, 2005 under the laws of Bermuda.

2.    BASIS OF PRESENTATION AND CONSOLIDATION
 
These unaudited condensed consolidated financial statements include the accounts of Flagstone and its wholly owned subsidiaries, including Flagstone Réassurance Suisse S.A. (“Flagstone Suisse”), and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  References in this Quarterly Report on Form 10-Q (this “Quarterly Report”) to “dollars” or “$” are to the lawful currency of the United States of America, unless the context otherwise requires.  All amounts in the following tables, unless otherwise stated, are expressed in thousands of U.S. dollars, except share amounts, per share amounts and percentages.  References in this Quarterly Report to (i) “foreign currency” are to currencies other than U.S. dollars and (ii) “foreign exchange” transactions or “foreign investments” are to transactions or investments, respectively, involving currencies other than U.S. dollars, in each case unless the context otherwise requires.  References in this Quarterly Report to “foreign subsidiaries” are to subsidiaries of Flagstone that are not domiciled in the United States of America or whose primary transactions are in foreign currency.  These unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries, including those that meet the consolidation requirements of variable interest entities (“VIEs”).  The Company assesses the consolidation of VIEs based on whether the Company is the primary beneficiary of the entity in accordance with the Consolidation Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).  Entities in which the Company has an ownership of more than 20% and less than 50% of the voting shares are accounted for using the equity method.  All intercompany accounts and transactions have been eliminated on consolidation.

The preparation of these unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the disclosed amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  The Company's principal estimates are for loss and loss adjustment expenses (“LAE”), estimates of premiums written, premiums earned, acquisition costs, fair value of investments and share based compensation.  The Company reviews and revises these estimates as appropriate based on current information. Any adjustments made to these estimates are reflected in the period the estimates are revised.

In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position and results of operations as at the end of and for the periods presented.  The results of operations and cash flows for any interim period will not necessarily be indicative of the results of operations and cash flows for the full fiscal year or subsequent quarters.  This Quarterly Report should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (the “2010 Annual Report”), filed with the Securities and Exchange Commission (“SEC”) on March 2, 2011.

3.    NEW ACCOUNTING PRONOUNCEMENTS
 
The Company describes its significant accounting policies in the 2010 Annual Report. The following is an update to the Company’s significant accounting policies since December 31, 2010.

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”).  ASU 2011-04 has resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value”.  This disclosure is effective for annual periods beginning after December 15, 2011.  The Company expects no significant impact resulting from the adoption of ASU 2011-04 on its consolidated results of operations and financial condition.

 
6
FLAGSTONE REINSURANCE HOLDINGS, S.A.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables expressed in thousands of U.S. dollars, except for share amounts, per share amounts and percentages)



In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”).  This ASU amends the FASB ASC to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income.  ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity.  This disclosure is effective for annual periods beginning after December 15, 2011.  The Company is currently assessing the potential impact of the adoption of ASU 2011-05 on its consolidated results of operations and financial condition.

4.       INVESTMENTS

Fixed maturity, short term, equity and other investments

The amortized cost or cost, gross unrealized gains and losses, and fair values as at June 30, 2011 and December 31, 2010 are as follows:

   
As at June 30, 2011
 
 Amortized cost or cost
  
 Gross unrealized gains
  
 Gross unrealized losses
  
 Fair value
Fixed maturity investments
                      
U.S. government and agency securities
$
 244,433 
  
$
 3,077 
  
$
 (271)
  
$
 247,239 
Other foreign governments
  
 251,409 
    
 14,371 
    
 (198)
    
 265,582 
Corporates
  
 502,743 
    
 29,725 
    
 (381)
    
 532,087 
Mortgage-backed securities
  
 225,774 
    
 13,111 
    
 (446)
    
 238,439 
Asset-backed securities
  
 77,238 
    
 2,929 
    
 (43)
    
 80,124 
   
 1,301,597 
    
 63,213 
    
 (1,339)
    
 1,363,471 
                       
Short term investments
                      
Other foreign governments
  
 1,015 
    
 - 
    
 - 
    
 1,015 
Corporates
  
 14,698 
    
 2 
    
 (3)
    
 14,697 
   
 15,713 
    
 2 
    
 (3)
    
 15,712 
                       
Equity investments
  
 275 
    
 - 
    
 (62)
    
 213 
   
 275 
    
 - 
    
 (62)
    
 213 
                       
Other investments
                      
Investment funds
  
 60,390 
    
 5,011 
    
 (5,263)
    
 60,138 
Catastrophe bonds
  
 64,001 
    
 750 
    
 (315)
    
 64,436 
   
 124,391 
    
 5,761 
    
 (5,578)
    
 124,574 
                       
 Totals
$
 1,441,976 
  
$
 68,976 
  
$
 (6,982)
  
$
 1,503,970 
 
 
 
7
FLAGSTONE REINSURANCE HOLDINGS, S.A.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables expressed in thousands of U.S. dollars, except for share amounts, per share amounts and percentages)


   
As at December 31, 2010
 
 Amortized cost or cost
  
 Gross unrealized gains
  
 Gross unrealized losses
  
 Fair value
Fixed maturity investments
                      
U.S. government and agency securities
$
 266,329 
  
$
 5,882 
  
$
 (375)
  
$
 271,836 
U.S. states and political subdivisions
  
 90 
    
 2 
    
 - 
    
 92 
Other foreign governments
  
 267,787 
    
 18,618 
    
 (480)
    
 285,925 
Corporates
  
 586,523 
    
 20,260 
    
 (4,239)
    
 602,544 
Mortgage-backed securities
  
 222,171 
    
 2,910 
    
 (2,224)
    
 222,857 
Asset-backed securities
  
 90,968 
    
 261 
    
 (621)
    
 90,608 
   
 1,433,868 
    
 47,933 
    
 (7,939)
    
 1,473,862 
                       
Short term investments
                      
U.S. government and agency securities
  
 2,998 
    
 - 
    
 - 
    
 2,998 
Corporates
  
 11,256 
    
 1 
    
 (4)
    
 11,253 
   
 14,254 
    
 1 
    
 (4)
    
 14,251 
                       
Equity investments
  
 7,931 
    
 4 
    
 (7,652)
    
 283 
   
 7,931 
    
 4 
    
 (7,652)
    
 283 
                       
Other investments
                      
Investment funds
  
 42,728 
    
 3,798 
    
 (6,533)
    
 39,993 
Catastrophe bonds
  
 75,484 
    
 1,226 
    
 (19)
    
 76,691 
   
 118,212 
    
 5,024 
    
 (6,552)
    
 116,684 
                       
Totals
$
 1,574,265 
  
$
 52,962 
  
$
 (22,147)
  
$
 1,605,080 

Other investments do not include an investment accounted for under the equity method in which the Company has significant influence and accordingly, is not accounted for at fair value under the FASB ASC guidance for financial instruments.  This investment was recorded at $2.6 million and $3.1 million at June 30, 2011 and December 31, 2010, respectively.

The following table presents the contractual maturity dates of fixed maturity and short term investments and their respective amortized cost and fair values as at June 30, 2011 and December 31, 2010.
                       
 
As at June 30, 2011
  
As at December 31, 2010
 
 Amortized cost
  
 Fair value
  
 Amortized cost
  
 Fair value
                       
 Due within one year
$
 65,389 
  
$
 69,297 
  
$
 38,558 
  
$
 39,909 
 Due after 1 through 5 years
  
 808,460 
    
 844,519 
    
 808,954 
    
 836,825 
 Due after 5 through 10 years
  
 103,289 
    
 107,790 
    
 196,683 
    
 202,136 
 Due after 10 years
  
 37,160 
    
 39,014 
    
 90,788 
    
 95,778 
 Mortgage and asset-backed securities
  
 303,012 
    
 318,563 
    
 313,139 
    
 313,465 
 Total
$
 1,317,310 
  
$
 1,379,183 
  
$
 1,448,122 
  
$
 1,488,113 

Actual maturities may differ from contractual maturities because certain borrowers have the right to prepay certain obligations with or without prepayment penalties.
 
 
8
FLAGSTONE REINSURANCE HOLDINGS, S.A.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables expressed in thousands of U.S. dollars, except for share amounts, per share amounts and percentages)


 
The following table presents a breakdown of the credit quality of the Company's fixed maturity and short term investments as at June 30, 2011 and December 31, 2010:
                       
 
As at June 30, 2011
  
As at December 31, 2010
 
Fair value
  
Percentage of total
  
Fair value
  
Percentage of total
Rating Category
                      
AAA
$
 850,203 
  
61.6 
%
  
$
 903,230 
  
60.7 
%
AA
  
 164,308 
  
12.0 
%
    
 193,302 
  
13.0 
%
A
  
 242,844 
  
17.6 
%
    
 262,086 
  
17.6 
%
BBB
  
 121,828 
  
8.8 
%
    
 129,495 
  
8.7 
%
Total
$
 1,379,183 
  
100.0 
%
  
$
 1,488,113 
  
100.0 
%

The Company has included credit rating information with respect to the Company’s investment portfolio to supplement the reader’s understanding of its composition and the consistency of the Company’s investment portfolio with the Company’s investment philosophy.

Fair value disclosure

The valuation technique used to determine the fair value of the financial instruments is the market approach which uses prices and other relevant information generated by market transactions involving identical or comparable assets.  

In accordance with the Fair Value Measurements and Disclosures Topic of the FASB ASC, the Company has classified its investments in U.S. government treasury securities and listed equity securities as Level 1 in the fair value hierarchy.  The fair value of these securities is the quoted market price of these securities, as provided either by independent pricing services or exchange market prices.

Investments in U.S. government agency securities, corporate bonds, mortgage-backed securities, foreign government bonds and asset-backed securities are classified as Level 2 in the fair value hierarchy.  The fair value of these securities is derived from broker quotes based on inputs that are observable for the asset, either directly or indirectly, such as yield curves and transactional history. Catastrophe bonds are classified as Level 2 in the fair value hierarchy as determined by reference to broker indications.  Those indications are based on current market conditions, including liquidity and transactional history, recent issue price of similar catastrophe bonds and seasonality of the underlying risks.

Investments in private equity funds and the mortgage-backed investments fund are classified as Level 3 in the fair value hierarchy.  The fair value of the private equity funds is determined by the investment fund managers using the net asset value provided by the administrator or manager of the funds on a quarterly basis and adjusted based on analysis and discussions with the fund managers.  The fair value of the mortgage-backed investment fund is determined by the net asset valuation provided by the independent administrator of the fund.  These valuations are then adjusted for cash flows since the most recent valuation, which is a methodology generally employed in the investment industry. 
 
 
9
FLAGSTONE REINSURANCE HOLDINGS, S.A.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables expressed in thousands of U.S. dollars, except for share amounts, per share amounts and percentages)


 
As at June 30, 2011 and December 31, 2010, the Company’s investments are allocated among fair value levels as follows:
 
 
Fair Value Measurement at June 30, 2011 using:
       
Quoted prices in
  
Significant other
  
Significant other
 
Fair value
  
active markets
  
observable inputs
  
unobservable inputs
 
measurements
  
(Level 1)
  
(Level 2)
  
(Level 3)
Fixed maturity investments
                      
U.S. government and agency securities
$
 247,239 
  
$
 171,784 
  
$
 75,455 
  
$
 - 
Other foreign governments
  
 265,582 
    
 - 
    
 265,582 
    
 - 
Corporates
  
 532,087 
    
 - 
    
 532,087 
    
 - 
Residential mortgage-backed securities
  
 238,439 
    
 - 
    
 238,439 
    
 - 
Asset-backed securities
  
 80,124 
    
 - 
    
 80,124 
    
 - 
   
 1,363,471 
    
 171,784 
    
 1,191,687 
    
 - 
                       
Short term investments
                      
Other foreign governments
  
 1,015 
    
 - 
    
 1,015 
    
 - 
Corporates
  
 14,697 
    
 - 
    
 14,697 
    
 - 
   
 15,712 
    
 - 
    
 15,712 
    
 - 
                       
Equity investments
                      
Financial services
  
 213 
    
 213 
    
 - 
    
 - 
   
 213 
    
 213 
    
 - 
    
 - 
                       
Other investments
                      
Investment funds
  
 60,138 
    
 - 
    
 - 
    
 60,138 
Catastrophe bonds
  
 64,436 
    
 - 
    
 64,436 
    
 - 
   
 124,574 
    
 - 
    
 64,436 
    
 60,138 
                       
Totals
$
 1,503,970 
  
$
 171,997 
  
$
 1,271,835 
  
$
 60,138 
 
 
10
FLAGSTONE REINSURANCE HOLDINGS, S.A.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables expressed in thousands of U.S. dollars, except for share amounts, per share amounts and percentages)



 
 
Fair Value Measurement at December 31, 2010 using:
       
Quoted prices in
  
Significant other
  
Significant other
 
Fair value
  
active markets
  
observable inputs
  
unobservable inputs
 
measurements
  
(Level 1)
  
(Level 2)
  
(Level 3)
Fixed maturity investments
                      
U.S. government and agency securities
$
 271,836 
  
$
 176,831 
  
$
 95,005 
  
$
 - 
U.S. states and political subdivisions
  
 92 
    
 - 
    
 92 
    
 - 
Other foreign government
  
 285,925 
    
 - 
    
 285,925 
    
 - 
Corporates
  
 602,544 
    
 - 
    
 602,544 
    
 - 
Commercial mortgage-backed securities
  
 1,064 
    
 - 
    
 1,064 
    
 - 
Residential mortgage-backed securities
  
 221,793 
    
 - 
    
 221,793 
    
 - 
Asset-backed securities
  
 90,608 
    
 - 
    
 90,608 
    
 - 
   
 1,473,862 
    
 176,831 
    
 1,297,031 
    
 - 
                       
Short term investments
                      
U.S. government and agency securities
  
 2,998 
    
 2,998 
    
 - 
    
 - 
Corporates
  
 11,253 
    
 - 
    
 11,253 
    
 - 
   
 14,251 
    
 2,998 
    
 11,253 
    
 - 
                       
Equity investments
                      
Financial services
  
 283 
    
 283 
    
 - 
    
 - 
   
 283 
    
 283 
    
 - 
    
 - 
                       
Other investments
                      
Investment funds
  
 39,993 
    
 - 
    
 - 
    
 39,993 
Catastrophe bonds
  
 76,691 
    
 - 
    
 76,691 
    
 - 
   
 116,684 
    
 - 
    
 76,691 
    
 39,993 
                       
Totals
$
 1,605,080 
  
$
 180,112 
  
$
 1,384,975 
  
$
 39,993 

Other investments do not include an investment accounted for under the equity method in which the Company has significant influence and accordingly, is not accounted for at fair value under the FASB ASC guidance for financial instruments.  This investment was recorded at $2.6 million and $3.1 million at June 30, 2011 and December 31, 2010, respectively.

The reconciliation of the fair value for the Level 3 investments for the period ended  June 30, 2011, including purchases and sales and change in realized and unrealized gains (losses) in earnings, is set out below:
       
     
For the six months ended
     
June 30, 2011
       
Fair value, December 31, 2010
  
$
 39,993 
Total realized losses included in earnings
    
 - 
Total unrealized gains included in earnings
    
 3,018 
Purchases
    
 3,476 
Sales
    
 (156)
Fair value, March 31, 2011
  
$
 46,331 
Total realized losses included in earnings
    
 - 
Total unrealized losses included in earnings
    
 (535)
Purchases
    
 14,431 
Sales
    
 (89)
Fair value, June 30, 2011
  
$
 60,138 
 
 
11
FLAGSTONE REINSURANCE HOLDINGS, S.A.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables expressed in thousands of U.S. dollars, except for share amounts, per share amounts and percentages)



For the Level 3 items still held as of June 30, 2011, the total change in fair value for the three and six months ended June 30, 2011 was $(0.5) million and $2.5 million.  Transfers between levels, if necessary, are done as of the actual date of the event or change in circumstance that caused the transfer.  There were no transfers between levels during the three and six months ended June 30, 2011.

Other investments

The Catastrophe bonds pay a variable and fixed interest coupon and generate investment return, and their performance is contingent upon climatological and geological events. 

The Company’s investment funds consist of investments in private equity, distressed debt and mortgage-backed investment funds.  As at June 30, 2011 and December 31, 2010, the Company had total outstanding investment commitments of $15.9 million and $13.7 million, respectively. Redemptions from these investments occur at the discretion of the general partner, board of directors or, in other cases, subject to a majority vote by the investors. The Company is not able to redeem a significant portion of these investments prior to 2017.
 
The following table presents the fair value of the Company’s investment funds as at June 30, 2011 and December 31, 2010:

   
As at
   
June 30, 2011
  
December 31, 2010
             
Distressed debt funds
  
$
 10,619 
  
$
 - 
Private equity funds
    
 9,788 
    
 8,143 
Mortgage-backed investment fund
    
 39,731 
    
 31,850 
Total
  
$
 60,138 
  
$
 39,993 

Pledged assets

The Company holds cash and cash equivalents and fixed maturity investments that were deposited or pledged in favor of ceding companies and other counterparties or government authorities to comply with reinsurance contract provisions, Lloyd’s of London requirements and insurance laws.

The total amount of such deposited or pledged cash and cash equivalents and fixed maturity investments as at June 30, 2011 and December 31, 2010 are as follows:

   
As at
   
June 30, 2011
  
December 31, 2010
             
Cash and cash equivalents
  
$
 54,736 
  
$
 43,413 
Fixed maturity investments
    
 538,569 
    
 539,738 
Total
  
$
 593,305 
  
$
 583,151 

5.       DERIVATIVES

The Company accounts for its derivative instruments using the Derivatives and Hedging Topic of the FASB ASC, which requires an entity to recognize all derivative instruments as either assets or liabilities on the balance sheet and measure those instruments at fair value, with the fair value recorded in other assets or liabilities.  The accounting for realized and unrealized gains and losses associated with changes in the fair value of derivatives depends on the hedge designation and, if designated as a hedging instrument, whether the hedge is effective in achieving offsetting changes in the fair value of the asset or liability being hedged.  The realized and unrealized gains and losses on derivatives not designated as hedging instruments are included in net realized and unrealized gains and losses in the consolidated financial statements.  Gains and losses associated with changes in fair value of the designated hedge instruments are recorded with the gains and losses on the hedged items, to the extent that the hedge is effective.  

The Company enters into derivative instruments such as interest rate futures contracts, foreign currency forward contracts and currency swaps in order to manage portfolio duration and interest rate risk, borrowing costs and foreign currency exposure.  

 
12
FLAGSTONE REINSURANCE HOLDINGS, S.A.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables expressed in thousands of U.S. dollars, except for share amounts, per share amounts and percentages)



The Company enters into index futures contracts and total return swaps to gain exposure to the underlying asset or index. The Company also purchases “to be announced” mortgage-backed securities (“TBAs”) as part of its investing activities.  The Company manages the exposure to these instruments in accordance with guidelines established by management and approved by the Company’s Board of Directors (the “Board”).

The Company has entered into certain foreign currency forward contracts for the purpose of hedging its net investments in foreign subsidiaries, and has designated these as hedging instruments.  These foreign currency forward contracts are carried at fair value and the realized and unrealized gains and losses are recorded in other comprehensive income as part of the cumulative translation adjustment, to the extent that these are effective as hedges.  All other derivatives are not designated as hedges, and accordingly, these instruments are carried at fair value, with the fair value recorded in other assets or liabilities with the corresponding realized and unrealized gains and losses included in net realized and unrealized gains and losses.

The details of the derivatives held by the Company as at June 30, 2011 and December 31, 2010 are as follows:
                         
   
As at June 30, 2011
   
Asset derivatives
  
Liability derivatives
            
   
record in
  
recorded in
            
   
other assets
  
other liabilities
  
Total derivatives
   
Fair value
  
Fair value
  
Net notional exposure
  
Fair value
         
Derivatives designated as hedging instruments
                      
 
Foreign currency forward contracts (1)
$
 - 
  
$
 580 
  
$
 46,431 
  
$
 (580)
     
 - 
    
 580 
          
 (580)
                         
Derivatives not designated as hedging instruments
                  
 
Purpose - risk management
                      
 
Currency swaps
$
 467 
  
$
 - 
  
$
 18,862 
  
$
 467 
 
Foreign currency forward contracts
  
 20,211 
    
 26,973 
    
 877,921 
    
 (6,762)
 
Futures contracts
  
 105 
    
 1,871 
    
 777,086 
    
 (1,766)
     
 20,783 
    
 28,844 
          
 (8,061)
 
Purpose - exposure
                      
 
Futures contracts
$
 852 
  
$
 657 
  
$
 57,837 
  
$
 195 
     
 852 
    
 657 
          
 195 
                         
     
 21,635 
    
 29,501 
          
 (7,866)
                         
Total derivatives
$
 21,635 
  
$
 30,081 
        
$
 (8,446)
 
 
13
FLAGSTONE REINSURANCE HOLDINGS, S.A.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables expressed in thousands of U.S. dollars, except for share amounts, per share amounts and percentages)


 
   
As at December 31, 2010
   
Asset derivatives
recorded in
other assets
  
Liability derivatives
recorded in
other liabilities
  
Total derivatives
   
Fair value
  
Fair value
  
Net notional exposure
  
Fair value
         
Derivatives designated as hedging instruments
                      
 
Foreign currency forward contracts(1)
$
 - 
  
$
 534 
  
$
 43,201 
  
$
 (534)
     
 - 
    
 534 
          
 (534)
                         
Derivatives not designated as hedging instruments
                  
 
Purpose - risk management
                      
 
Currency swaps
$
 - 
  
$
 1,020 
  
$
 17,375 
  
$
 (1,020)
 
Foreign currency forward contracts
  
 14,701 
    
 19,396 
    
 820,114 
    
 (4,695)
 
Futures contracts
  
 1,822 
    
 4,125 
    
 1,100,498 
    
 (2,303)
     
 16,523 
    
 24,541 
          
 (8,018)
 
Purpose - exposure
                      
 
Futures contracts
$
 4,866 
  
$
 223 
  
$
 170,105 
  
$
 4,643 
 
Mortgage-backed securities TBA
  
 4 
    
 17 
    
 4,275 
    
 (13)
 
Other reinsurance derivatives
  
 - 
    
 241 
    
 - 
    
 (241)
     
 4,870 
    
 481 
          
 4,389 
                         
     
 21,393 
    
 25,022 
          
 (3,629)
                         
Total derivatives
$
 21,393 
  
$
 25,556 
        
$
 (4,163)

 Designated
                            
  
  
Amount of Gain or (Loss) on Derivatives Recognized in
  
  
Comprehensive income (loss)
      
Net income (loss)
  
  
(Effective portion)
      
(Ineffective portion)
 Derivatives designated
as hedging instruments
  
For the three months ended June 30,
      
For the three months ended June 30,
  
    
2011 
    
2010 
  
Location
    
2011 
    
2010 
                             
 Foreign currency forward contracts(1)
  
$
 (831)
  
$
 3,877 
  
Net realized and unrealized (losses) - other
  
$
 (124)
  
$
 (247)
 
 
$
 (831)
  
$
 3,877 
      
$
 (124)
  
$
 (247)
 
                           
 
 
Amount of Gain or (Loss) on Derivatives Recognized in
  
  
Comprehensive income (loss)
      
Net income (loss)
  
  
(Effective portion)
      
(Ineffective portion)
 Derivatives designated
as hedging instruments
  
For the six months ended June 30,
      
For the six months ended June 30,
  
    
2011 
    
2010 
  
Location
    
2011 
    
2010 
                             
 Foreign currency forward contracts(1)
  
$
 (2,040)
  
$
 4,471 
  
Net realized and unrealized (losses) - other
  
$
 (349)
  
$
 (272)
 
 
$
 (2,040)
  
$
 4,471 
      
$
 (349)
  
$
 (272)
 
                           
(1)Recognized as a foreign currency hedge under the Derivatives and Hedging Topic of the ASC.
      
 
 
14
FLAGSTONE REINSURANCE HOLDINGS, S.A.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables expressed in thousands of U.S. dollars, except for share amounts, per share amounts and percentages)


 
Non-Designated
                
   
Gain or (Loss) on Derivatives Recognized in Net Income
Derivatives not designated
      
For the three months ended June 30,
as hedging instruments
  
Location
  
2011 
  
2010 
Futures contracts
  
Net realized and unrealized losses - investments
  
$
 (16,516)
  
$
 (20,749)
Total return swaps
  
Net realized and unrealized losses - investments
    
 - 
    
 (139)
Currency swaps
  
Net realized and unrealized gains (losses) - other
    
 467 
    
 (1,679)
Foreign currency forward contracts
  
Net realized and unrealized (losses) gains - investments
    
 (17,107)
    
 30,954 
Foreign currency forward contracts
  
Net realized and unrealized gains (losses) - other
    
 13,643 
    
 (604)
Mortgage-backed securities TBA
  
Net realized and unrealized gains - investments
    
 12 
    
 234 
Other reinsurance derivatives
  
Net realized and unrealized gains - other
    
 - 
    
 564 
       
$
 (19,501)
  
$
 8,581 
                 
   
Gain or (Loss) on Derivatives Recognized in Net Income
Derivatives not designated
      
For the six months ended June 30,
as hedging instruments
  
Location
  
2011 
  
2010 
Futures contracts
  
Net realized and unrealized losses - investments
  
$
 (8,774)
  
$
 (20,353)
Total return swaps
  
Net realized and unrealized gains - investments
    
 - 
    
 1,105 
Currency swaps
  
Net realized and unrealized gains (losses) - other
    
 1,547 
    
 (2,766)
Foreign currency forward contracts
  
Net realized and unrealized (losses) gains - investments
    
 (51,083)
    
 48,416 
Foreign currency forward contracts
  
Net realized and unrealized gains - other
    
 11,857 
    
 5,611 
Mortgage-backed securities TBA
  
Net realized and unrealized gains - investments
    
 17 
    
 888 
Other reinsurance derivatives
  
Net realized and unrealized gains - other
    
 241 
    
 1,119 
       
$
 (46,195)
  
$
 34,020 

Foreign currency forward contracts

The Company enters into foreign currency forward contracts for the purpose of hedging its net investment in foreign subsidiaries which are recorded as designated hedges. All other foreign currency forward contracts are not designated as hedges and are entered into for the purpose hedging our foreign currency fixed maturity investments and our net foreign currency operational assets and liabilities.

Futures contracts

The Company uses futures contracts to gain exposure to U.S. equity, global equity, emerging market equity and commodities.  The Company uses interest rate futures contracts to manage the duration of the fixed maturity investments.

Total return swaps

The Company uses total return swaps to gain exposure to a global inflation linked bond index and a global equity index.  The total return swaps allow the Company to earn the return of the underlying index while paying floating interest plus a spread to the counterparty.  

Currency swaps

The Company uses currency swaps to minimize the effect of fluctuating foreign currencies.  The currency swaps relate to the Company’s Euro denominated debentures.

To be announced mortgage-backed securities

The Company also purchases TBAs as part of its investing activities.  By acquiring a TBA, the Company makes a commitment to purchase a future issuance of mortgage-backed securities.
 
 
15
FLAGSTONE REINSURANCE HOLDINGS, S.A.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables expressed in thousands of U.S. dollars, except for share amounts, per share amounts and percentages)


Other reinsurance derivatives
 
The Company writes certain reinsurance contracts that are classified as derivatives in accordance with the FASB ASC Topic for Derivatives and Hedging.  The Company has entered into industry loss warranty (“ILW”) transactions that may be structured as reinsurance or derivatives.
 
Fair value disclosure

In accordance with the Fair Value Measurements and Disclosures Topic of the FASB ASC, the fair value of derivative instruments held as at June 30, 2011 and December 31, 2010 is allocated between levels as follows:

 
Fair Value Measurement at June 30, 2011, using:
       
Quoted prices
  
Significant other
  
Significant other
 
Fair value
  
in active markets
  
observable inputs
  
unobservable inputs
 
measurements
  
(Level 1)
  
(Level 2)
  
(Level 3)
Description
                      
Futures contracts
$
 (1,571)
  
$
 (1,571)
  
$
 - 
  
$
 - 
Swaps
  
 467 
    
 - 
    
 467 
    
 - 
Foreign currency forward contracts
  
 (7,342)
    
 - 
    
 (7,342)
    
 - 
Total derivatives
$
 (8,446)
  
$
 (1,571)
  
$
 (6,875)
  
$
 - 

For the Level 3 items still held as of June 30, 2011, the total change in fair value for the three and six months ended June 30, 2011, recorded in net realized and unrealized gains (losses) – other, was $nil.

 
Fair Value Measurement at December 31, 2010, using:
       
Quoted prices
  
Significant other
  
Significant other
 
Fair value
  
 in active markets
  
observable inputs
  
unobservable inputs
 
measurements
  
(Level 1)
  
(Level 2)
  
(Level 3)
Description
                      
Futures contracts
$
 2,340 
  
$
 2,340 
  
$
 - 
  
$
 - 
Swaps
  
 (1,020)
    
 - 
    
 (1,020)
    
 - 
Foreign currency forward contracts
  
 (5,229)
    
 - 
    
 (5,229)
    
 - 
Mortgage-backed securities TBA
  
 (13)
    
 - 
    
 (13)
    
 - 
Other reinsurance derivatives
  
 (241)
    
 - 
    
 - 
    
 (241)
Total derivatives
$
 (4,163)
  
$
 2,340 
  
$
 (6,262)
  
$
 (241)

The reconciliation of the fair value for the Level 3 derivative instruments, including net purchases and sales, realized gains and changes in unrealized gains (losses), is as follows:
   
For the six months ended
   
June 30, 2011
Other reinsurance derivatives
      
Fair value, December 31, 2010
  
$
 (241)
Total realized gains (losses) included in earning
    
 - 
Total unrealized gains included in earnings
    
 241 
Purchases
    
 - 
Sales
    
 - 
Fair value, March 31, 2011
  
$
 - 
Total realized gains (losses) included in earning
    
 - 
Total unrealized gains included in earnings
    
 - 
Purchases
    
 - 
Sales
    
 - 
Fair value, June 30, 2011
  
$
 - 
       
Transfers between levels, if necessary, are done as of the actual date of the event or change in circumstance that caused the transfer.  There were no transfers between levels during the three and six months ended June 30, 2011.

 
16
FLAGSTONE REINSURANCE HOLDINGS, S.A.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables expressed in thousands of U.S. dollars, except for share amounts, per share amounts and percentages)



6.   GOODWILL AND INTANGIBLES

The following tables detail goodwill and intangible assets as at June 30, 2011 and December 31, 2010:

Goodwill relates to the following reportable segments:
  
 Reinsurance
  
 Lloyd's
  
Island Heritage
  
 Total
 
Balance as at December 31, 2010
  
$
 3,108 
  
$
 3,223 
  
$
 10,050 
  
$
 16,381 
 
Impact of foreign exchange
    
 - 
    
 95 
    
 - 
    
 95 
 
Balance as at June 30, 2011
  
$
 3,108 
  
$
 3,318 
  
$
 10,050 
  
$
 16,476 

     
Carrying value at
December 31, 2010
  
 Accumulated amortization (1)
  
 Impact of foreign exchange
  
Carrying value at
June 30, 2011
 Finite life intangibles
                         
 Software
   
$
 3,368 
  
$
 (242)
  
$
 124 
  
$
 3,250 
 Distribution network
     
 2,928 
    
 (168)
    
 106 
    
 2,866 
     
$
 6,296 
  
$
 (410)
  
$
 230 
  
$
 6,116 
 Indefinite life intangibles
                         
 Lloyd's syndicate capacity
   
$
 24,478 
  
$
 - 
  
$
 720 
  
$
 25,198 
 Licenses
     
 775 
    
 - 
    
 - 
    
 775 
     
$
 25,253 
  
$
 - 
  
$
 720 
  
$
 25,973 
                           
Total intangible assets
    
$
 31,549 
  
$
 (410)
  
$
 950 
  
$
 32,089 
                           
 Aggregate amortization expenses (1)
                          
 For the six months ended June 30, 2011
              
$
 369 

         
 Estimated amortization expense
For the years ending December 31,
  
 Amount
         
 
2011 
  
$
 724 
 
2012 
    
 696 
 
2013 
    
 670 
 
2014 
    
 648 
 
2015 
    
 627 
         
(1)Accumulated amortization is converted at the end of period foreign exchange rate and amortization expense is converted at an average foreign exchange rate for the period.

7.       ASSETS HELD FOR SALE

During the year ended December 31, 2010, the Company decided to dispose of certain corporate aircraft that it leased and owned. As a result, the Company terminated all operational lease agreements at the casualty value stipulated under the lease agreements.   As at December 31, 2010, the Company had disposed of two aircraft and had reflected one as an asset held for sale on the consolidated balance sheet as at December 31, 2010. On June 1, 2011, the Company disposed of the aircraft reflected in assets held for sale, resulting in a gain on disposal of less than $0.1 million.

8.    MONT FORT RE LIMITED

On March 25, 2011, Mont Fort Re Limited (“Mont Fort”) repurchased 28.1 million preferred shares relating to its third cell, Mont Fort High Layer, for $46.5 million. As a result of this preferred share repurchase there is no longer a noncontrolling interest in Mont Fort.
 
 
17
FLAGSTONE REINSURANCE HOLDINGS, S.A.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables expressed in thousands of U.S. dollars, except for share amounts, per share amounts and percentages)


9.      DEBT AND FINANCING ARRANGEMENTS

Long term debt

Interest expense includes interest payable, amortization of debt offering expenses and finance charges on our letter of credit facilities.  The debt offering expenses are amortized over the period from the issuance of the Deferrable Interest Debentures to the earliest date that they may be called by the Company.  For the three and six months ended June 30, 2011, the Company incurred interest expense of $2.6 million and $5.2 million, respectively, on the Deferrable Interest Debentures compared to $2.3 million and $4.5 million, respectively, for the same periods in 2010.  The Company had $0.8 million of interest payable included in other liabilities at both June 30, 2011 and December 31, 2010.

The Company does not carry its long term debt at fair value on its consolidated balance sheets.  At June 30, 2011, the Company estimated the fair value of its long term debt to be approximately $234.4 million compared to $220.5 million at December 31, 2010.

Letter of credit facilities

On March 5, 2009, Flagstone Suisse entered into a $200.0 million secured committed letter of credit facility with Barclays Bank Plc (the “Barclays Facility”). On March 5, 2011, the Barclays Facility was amended to extend the maturity date to August 31, 2011 to allow for the renegotiation of the agreement. The Barclays Facility is used to support the reinsurance obligations of the Company.  As at June 30, 2011, $30.3 million had been drawn under the Barclays Facility, and the drawn amount was secured by $33.6 million of fixed maturity securities from the Company’s investment portfolio.

On April 28, 2010, Flagstone Suisse and Flagstone Capital Management Luxembourg SICAF – FIS entered into a secured $450.0 million standby letter of credit facility with Citibank Europe Plc (the “Citi Facility”).  The Citi Facility comprised a $225.0 million facility for letters of credit with a maximum tenor of 15 months, to be used to support reinsurance obligations of the Company, and a $225.0 million facility for letters of credit drawn in respect of Funds at Lloyd’s with a maximum tenor of 60 months.  On December 21, 2010, the Citi Facility was amended to increase the amount available under the facility by $100.0 million to $550.0 million, with all the terms and conditions remaining unchanged.  The Citi Facility now comprises a $275.0 million facility for letters of credit with a maximum tenor of 15 months, to be used to support reinsurance obligations of the Company, and a $275.0 million facility for letters of credit drawn in respect of Funds at Lloyd’s with a maximum tenor of 60 months.  As at June 30, 2011, $428.2 million had been drawn under the Citi Facility, and the drawn amount of the facility was secured by $503.9 million of fixed maturity securities from the Company’s investment portfolio.  The Citi Facility replaced a $450.0 million credit facility with Citibank Europe Plc which commenced on January 22, 2009.

These facilities are used to provide security to reinsureds and for Funds at Lloyd’s, and they are fully collateralized by the Company, to the extent of the letters of credit outstanding at any given time.

10.      SHARE BASED COMPENSATION

The Company accounts for share based compensation in accordance with the Compensation – Stock Compensation Topic of the FASB ASC which requires entities to measure the cost of services received from employees and directors in exchange for an award of equity instruments based on the grant date fair value of the award. The cost of such services will be recognized as compensation expense over the period during which an employee or director is required to provide service in exchange for the award. The Company’s share based compensation plans consist of Performance Share Units (“PSUs”) and Restricted Share Units (“RSUs”).

Performance Share Units
 
The Company’s Performance Share Unit Plan (“PSU Plan”) is the Company’s shareholder approved primary executive long term incentive scheme. Pursuant to the terms of the PSU Plan, at the discretion of the Compensation Committee of the Board, PSUs may be granted to executive officers and certain other key employees. The number of units that will be exercised at the end vesting period is contingent upon the Company meeting certain diluted return-on-equity (“DROE”) goals.
 
 
18
FLAGSTONE REINSURANCE HOLDINGS, S.A.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables expressed in thousands of U.S. dollars, except for share amounts, per share amounts and percentages)


 
A summary of the activity under the PSU Plan as at June 30, 2011, and changes during the three and six months ended June 30, 2011, is as follows:
                           
 
For the three months ended June 30, 2011
  
For the six months ended June 30, 2011
 
Number
  
Weighted
  
Weighted average
  
Number
  
Weighted
  
Weighted average
 
expected
  
average grant
  
remaining
  
expected
  
average grant
  
remaining
 
to vest
  
date fair value
  
contractual term
  
to vest
  
date fair value
  
contractual term
                           
Outstanding at beginning of period
 1,965,091 
  
$
 10.77 
  
1.4 
  
 3,998,558 
  
$
 10.25 
  
0.9 
Granted
 - 
    
 - 
      
 777,500 
    
 12.59 
    
Forfeited
 (29,384)
    
 10.95 
      
 (56,733)
    
 11.01 
    
Performance factor changes
 (173,265)
    
 9.98 
      
 (1,584,374)
    
 10.84 
    
Exercised
 - 
    
 - 
      
 (1,372,509)
    
 10.12 
    
Outstanding at end of period
 1,762,442 
    
 10.84 
  
 1.2 
  
 1,762,442 
    
 10.84 
  
 1.2 

The Company reviews its assumptions in relation to the PSUs on a quarterly basis. The issuance of shares with respect to the PSUs is contingent upon the attainment of certain levels of average DROE over a three year period. For the three and six months ended June 30, 2011, $0.1 million and $(4.1) million, respectively, of compensation expense related to the PSU Plan has been recorded in general and administrative expenses compared to $3.8 million and $7.9 million for the same period in 2010.  As at June 30, 2011 and December 31, 2010, there was a total of $8.3 million and $12.2 million, respectively, of unrecognized compensation cost related to non−vested PSUs; that cost is expected to be recognized over periods of approximately 1.8 years and 1.5 years, respectively.

Since the inception of the PSU Plan, 1,432,509 PSUs have vested and 2,368,658 PSUs have been cancelled.

Restricted Share Units

The purpose of the Company’s Restricted Share Unit Plan (the “RSU Plan”) is to encourage certain employees and directors of the Company to further the development of the Company and to attract and retain key employees for the Company’s long term success. The RSUs granted to employees vest over a period of approximately two years and RSUs granted to directors vest on the grant date.

A summary of the activity under the RSU Plan as at June 30, 2011, and changes during the three and six months ended June 30, 2011, is as follows:
                           
 
For the three months ended June 30, 2011
  
For the six months ended June 30, 2011
 
Number
    
Weighted average
  
Weighted average
  
Number
    
Weighted average
  
Weighted average
 
expected to
    
grant date
  
remaining
  
expected to
    
grant date
  
remaining
 
vest
    
fair value
  
contractual term
  
vest
    
fair value
  
contractual term
                           
Outstanding at beginning of period
 614,927 
  
$
11.81 
  
0.5 
  
 577,213 
  
$
11.08 
  
0.3 
Granted
 - 
    
 - 
      
 207,614 
    
12.60 
    
Forfeited
 (18,800)
    
11.81 
      
 (29,300)
    
11.68 
    
Exercised
 (3,293)
    
12.60 
      
 (162,693)
    
10.26 
    
Outstanding at end of period
 592,834 
    
11.81 
  
 0.5 
  
 592,834 
    
11.81 
  
 0.5 

Unrecognized compensation cost related to non-vested RSUs was $1.7 million and $0.9 million at June 30, 2011 and December 31, 2010, respectively, and is expected to be recognized over a period of approximately 1.2 years and 1.0 year, respectively.  Compensation expenses related to the RSU Plan of $0.3 million and $1.6 million were recorded in general and administrative expenses for the three and six months ended June 30, 2011 compared to $0.4 million and $1.5 million for the same periods in 2010.
 
 
19
FLAGSTONE REINSURANCE HOLDINGS, S.A.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables expressed in thousands of U.S. dollars, except for share amounts, per share amounts and percentages)



Since the inception of the RSU Plan in July 2006, 544,492 RSUs granted to employees have vested and no RSUs granted to employees have been cancelled. During the three and six months ended June 30, 2011, nil and 63,964 RSUs, respectively, were granted to the directors, compared to nil and 64,896 RSUs, respectively, during the same periods in 2010.   During both the three and six months ended June 30, 2011, 3,293 RSUs granted to directors were converted into common shares of the Company as elected by the directors, compared to 8,040 RSUs during both the same periods in 2010.

The Company uses a nil forfeiture assumption for its PSUs and RSUs.  The intrinsic value of both PSUs and RSUs outstanding as at June 30, 2011 was $14.9 million and $5.0 million, respectively.

11.       EARNINGS (LOSS) PER COMMON SHARE

The computation of basic and diluted earnings (loss) per common share for the three and six months ended June 30, 2011 and 2010 is as follows:

   
For the three months ended June 30,
  
For the six months ended June 30,
   
2011 
  
2010 
  
2011 
  
2010 
                         
Basic earnings per common share
                        
Net (loss) income attributable to Flagstone
  
$
 (20,210)
  
$
 13,269 
  
$
 (181,430)
  
$
 44,773 
Weighted average common shares outstanding
    
 70,056,431 
    
 79,213,487 
    
 69,544,000 
    
 80,742,707 
Weighted average vested restricted share units
    
 324,421 
    
 266,431 
    
 325,195 
    
 268,232 
Weighted average common shares outstanding—Basic
    
 70,380,852 
    
 79,479,918 
    
 69,869,195 
    
 81,010,939 
Basic (loss) earnings per common share
  
$
 (0.29)
  
$
 0.17 
  
$
 (2.60)
  
$
 0.55 
                         
Diluted earnings per common share
                        
Net (loss) income attributable to Flagstone
  
$
 (20,210)
  
$
 13,269 
  
$
 (181,430)
  
$
 44,773 
Weighted average common shares outstanding
    
 70,056,431 
    
 79,213,487 
    
 69,544,000 
    
 80,742,707 
Weighted average vested restricted share units outstanding
    
 324,421 
    
 266,431 
    
 325,195 
    
 268,232 
     
 70,380,852 
    
 79,479,918 
    
 69,869,195 
    
 81,010,939 
Share equivalents:
                        
Weighted average unvested restricted share units
    
 - 
    
 133,213 
    
 - 
    
 194,905 
Weighted average common shares outstanding—Diluted
    
 70,380,852 
    
 79,613,131 
    
 69,869,195 
    
 81,205,844 
Diluted (loss) earnings per common share
  
$
 (0.29)
  
$
 0.17 
  
$
 (2.60)
  
$
 0.55 

Dilutive share equivalents have been excluded in the weighted average common shares used for the calculation of earnings per share in periods of net loss because the effect of such securities would be anti-dilutive.  The number of anti-dilutive share equivalents that were excluded in the computation of diluted earnings per share for the three and six months ended June 30, 2011 was 749,424 and 956,246, respectively. Because the number of shares above a minimum threshold are contingently issuable under the PSU Plan depends on the average DROE over a two or three year period, those contingently issuable PSUs are excluded from the calculation of diluted earnings per common share until the end of the performance period, at which time the number of shares issuable under the PSU Plan will be known. Only the minimum number of PSUs that will vest under each grant are included in the calculation of diluted earnings in a period of net income. As at June 30, 2011 and 2010, there were 1,762,442 and 4,095,175 PSUs expected to vest, respectively.  The maximum number of common shares that could be issued under the PSU Plan at June 30, 2011 and 2010 was 4,889,492 and 5,404,548, respectively. Also, at June 30, 2011 and 2010, there was a warrant outstanding which would result in the issuance of 630,194 and 8,585,747 common shares that were excluded from the computation of diluted earnings per common share because the effect would be anti-dilutive. 

 
 
20
FLAGSTONE REINSURANCE HOLDINGS, S.A.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables expressed in thousands of U.S. dollars, except for share amounts, per share amounts and percentages)


 
12.   SHAREHOLDERS’ EQUITY

Common shares

At June 30, 2011, the total authorized common voting shares of the Company were 300,000,000, with a par value of $0.01 per common share (December 31, 2010 – 300,000,000).

The following table is a summary of the common shares issued and outstanding for the periods ending June 30, 2011 and December 31, 2010:
 
 
For the periods ended
  
June 30, 2011
  
December 31, 2010
 Common voting shares:
     
 Balance at beginning of period
 68,585,588 
  
 82,985,219 
 Conversion of performance share units (1)
 1,339,379 
  
 - 
 Conversion of restricted share units (1)
 133,201 
  
 10,499 
 Shares repurchased and cancelled
 - 
  
 (520,960)
 Shares repurchased and held in treasury
 - 
  
 (13,889,170)
 Balance at end of period
 70,058,168 
  
 68,585,588 
  
      
(1)Conversion of performance share units and restricted share units are net of shares withheld for the payment of tax on the employee's behalf.

13.   LEGAL PROCEEDINGS

In the normal course of business, the Company may become involved in various claims litigation and legal proceedings.  Such proceedings often involve reinsurance contract disputes which are typical for the insurance and reinsurance industry. As at June 30, 2011, the Company was not a party to any material litigation or arbitration proceedings.

 
21
FLAGSTONE REINSURANCE HOLDINGS, S.A.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables expressed in thousands of U.S. dollars, except for share amounts, per share amounts and percentages)



14.    SEGMENT REPORTING
 
The Company reports its results to the chief operating decision maker based on three reportable segments: Reinsurance, Lloyd’s and Island Heritage.  The Company regularly reviews its financial results and assesses its performance on the basis of these three reportable segments.

The following tables provide a summary of gross and net written and earned premiums, underwriting results, a reconciliation of underwriting income to income before income taxes and interest in earnings of equity investments, total assets, and ratios for each reportable segment for the three and six months ended June 30, 2011 and 2010:

   
For the three months ended June 30, 2011
  
 
Reinsurance
  
Lloyd's
  
Island Heritage
  
Inter-segment Eliminations (1)
  
Total
                                     
Gross premiums written
$
 274,264 
    
$
 51,873 
    
$
 30,491 
    
$
 (10,135)
  
$
 346,493 
  
Premiums ceded
  
 (44,410)
      
 (2,526)
      
 (45,555)
      
 10,135 
    
 (82,356)
  
Net premiums written
 
 229,854 
      
 49,347 
      
 (15,064)
      
 - 
    
 264,137 
  
Net premiums earned
$
 129,392 
    
$
 35,931 
    
$
 5,954 
    
$
 - 
  
$
 171,277 
  
Other related income
  
 897 
      
 696 
      
 4,767 
      
 (4,187)
    
 2,173 
  
Loss and loss adjustment expenses
  
 (89,379)
      
 (25,497)
      
 (319)
      
 - 
    
 (115,195)
  
Acquisition costs
  
 (29,601)
      
 (8,386)
      
 (5,257)
      
 4,187 
    
 (39,057)
  
General and administrative expenses
  
 (21,443)
      
 (5,367)
      
 (2,375)
      
 - 
    
 (29,185)
  
Underwriting (loss) income
$
 (10,134)
    
$
 (2,623)
    
$
 2,770 
    
$
 - 
  
$
 (9,987)
  
                                     
Loss ratio (2)
  
 69.1 
%
    
 71.0 
%
    
 3.0 
%
          
 67.3 
%
Acquisition cost ratio (2)
  
 22.9 
%
    
 23.3 
%
    
 49.0 
%
          
 22.8 
%
General and administrative expense ratio (2)
  
 16.6 
%
    
 14.9 
%
    
 22.1 
%
          
 17.0 
%
Combined ratio (2)
  
 108.6 
%
    
 109.2 
%
    
 74.1 
%
          
 107.1 
%
Total assets
$
 2,773,575 
    
$
 336,421 
    
$
 133,600 
          
$
 3,243,596 
  
                                     
Reconciliation:
                                    
Underwriting loss
                              
$
 (9,987)
  
Net investment income
                                
 13,075 
  
Net realized and unrealized losses - investments
                    
 (7,761)
  
Net realized and unrealized gains - other
                    
 13,986 
  
Other income
                                
 347 
  
Interest expense
                                
 (2,994)
  
Net foreign exchange losses
                                
 (27,041)
  
Loss before income taxes and interest in earnings of equity investments
                  
$
 (20,375)
  

 
22
FLAGSTONE REINSURANCE HOLDINGS, S.A.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables expressed in thousands of U.S. dollars, except for share amounts, per share amounts and percentages)




  
  
For the three months ended June 30, 2010
  
  
Reinsurance
  
Lloyd's
  
Island Heritage
  
Inter-segment Eliminations (1)
  
Total
  
                                    
 Gross premiums written
$
 295,702 
    
$
 60,773 
    
$
 23,316 
    
$
 (10,180)
  
$
 369,611 
  
 Premiums ceded
  
 (39,975)
      
 (7,484)
      
 (38,490)
      
 10,180 
    
 (75,769)
  
 Net premiums written
 
 255,727 
      
 53,289 
      
 (15,174)
      
 - 
    
 293,842 
  
 Net premiums earned
$
 191,654 
    
$
 37,610 
    
$
 2,815 
    
$
 - 
  
$
 232,079 
  
 Other related income
  
 2,495 
      
 1,487 
      
 5,539 
      
 (3,691)
    
 5,830 
  
 Loss and loss adjustment expenses
  
 (112,435)
      
 (39,179)
      
 (249)
      
 - 
    
 (151,863)
  
 Acquisition costs
  
 (36,492)
      
 (8,394)
      
 (4,389)
      
 3,691 
    
 (45,584)
  
 General and administrative expenses
  
 (34,048)
      
 (6,615)
      
 (2,059)
      
 - 
    
 (42,722)
  
 Underwriting income (loss)
$
 11,174 
    
$
 (15,091)
    
$
 1,657 
    
$
 - 
  
$
 (2,260)
  
  
                                    
 Loss ratio (2)
  
 58.7 
%
    
 104.2 
%
    
 3.0 
%
          
 65.4 
%
 Acquisition cost ratio (2)
  
 19.0 
%
    
 22.3 
%
    
 52.5 
%
          
 19.6 
%
 General and administrative expense ratio (2)
  
 17.8 
%
    
 17.6 
%
    
 24.6 
%
          
 18.4 
%
 Combined ratio (2)
  
 95.5