Flagstone Reinsurance Holdings SA : A.M. Best Affirms Ratings of Flagstone Reassurance Suisse S.A.

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and issuer credit ratings (ICR) of "a-" of Flagstone Reassurance Suisse S.A. (Martigny, Switzerland) and Flagstone Alliance Insurance and Reinsurance PLC (Limassol, Cyprus). A.M. Best also has affirmed the ICR of "bbb-" of Flagstone Reinsurance Holdings S.A. (Luxembourg) (NYSE: FSR) (collectively referred to as Flagstone Re). Concurrently, A.M. Best has affirmed the indicative ratings for securities available under the shelf registration of "bb" on preferred stock, "bb+" on subordinated debt and "bbb-" on senior debt of Flagstone Holding's. The outlook for all ratings is negative.

The ratings of Flagstone Re reflect its excellent level of risk-based capitalization, experienced management team and its specialty focused business profile. The ratings also recognize the significant remedial actions taken by current management to streamline the organizational structure, de-risk the balance sheet and significantly reduce overall expenses. A.M. Best believes the current leadership has the necessary capabilities to support the core operating activities of the organization as well as enhance its franchise going forward.

A.M. Best recognizes that as a catastrophe-focused reinsurer, periodically losses will occur of a magnitude sufficient to significantly impact earnings. Despite the fact that Flagstone Re has been negatively impacted by a series of catastrophe losses in 2011, its current overall capitalization remains more than sufficient to withstand A.M. Best's capital stress test, which considers the potential for additional shock losses based on the probable maximum losses (PML) for future events as modeled by the company. Flagstone Re's current capital is supported by an enhanced level of retrocessional support. The current retrocession program adequately contains Flagstone Re's net exposure to large catastrophe events, and in combination with underwriting initiatives, has reduced its net retained PML materially as compared to prior years. The retrocessional protection is collateralized or acquired from highly rated counterparties. Flagstone Re's ratings also continue to reflect the high quality and liquid investment portfolio that supports the company's loss reserves.

The negative outlook reflects A.M. Best's opinion that Flagstone Re's current financial flexibility and the company's competitive position may be somewhat constrained as a result of its recent losses and smaller capital position. The company's historical profit measures have fallen short of its peer group due to legacy issues and an apparent weakness in its enterprise risk management framework, which have since been addressed. It is necessary, however, for Flagstone Re to demonstrate the benefits of its recent actions by exhibiting an ability to generate sustainable earnings, organic capital growth and thereby enhance its overall business profile.

Resolution of the negative outlook is therefore dependent on Flagstone Re's ability to successfully execute its new business strategy by demonstrating the ability to generate a reasonable and sustainable level of profitability over the near to medium term and improve its overall financial flexibility.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Understanding Universal BCAR"; "Catastrophe Analysis in A.M. Best Ratings"; "Insurance Holding Company and Debt Ratings"; and "Rating Members of Insurance Groups." Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best Co.
Gale Guerra, 908-439-2200, ext. 5069
Senior Financial Analyst
gale.guerra@ambest.com
or
Robert DeRose, 908-439-2200, ext. 5453
Vice President
robert.derose@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

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