Flagstone Reinsurance Holdings Limited (NYSE:FSR) announced today that
their third quarter of 2007 ended with a basic book value per share of
$13.59, up 7.1% for the quarter and diluted book value per share of
$13.30, up 7.1% for the quarter both measures inclusive of dividends.
Net income available to common shareholders for the quarter ended
September 30, 2007 of $66.2 million, or $0.77 per diluted share,
compared to $56.9 million, or $0.79 per diluted share, for the quarter
ended September 30, 2006. Net income for the nine months ended September
30, 2007 was $116.6 million, or $1.44 per diluted share, compared to
$88.8 million, or $1.27 per diluted share, for the corresponding period
of 2006.
CEO David Brown commented: "The third quarter
produced a very pleasing result. Our gross premiums written for the year
to date are up 77.6% over last year, after eliminating the impact of
Island Heritage which we consolidated for the first time this quarter.
This growth was achieved in a careful manner without sacrificing quality
or terms and conditions. The quarter was not without losses, but they
were moderate events for us and reserves established in prior quarters
proved to be solid.”
Chairman, Mark Byrne noted: "We regard the
increase in diluted book value per share, measured over intervals of
three years, as the best single measure of our performance for
shareholders. Since the founding of the Company the annualized growth is
18.9%, which is better than our 17% target. Since our reinsurance book
is exposed to catastrophes, our results will not be smooth from quarter
to quarter, and we do not issue earnings guidance.”
Summary of unaudited consolidated financial data for the periods are
follows:
Three Months Ended
Nine Months Ended
September 30, 2007
September 30, 2006
September 30, 2007
September 30, 2006
(Expressed in thousands of U.S. dollars, except for share data and
ratios)
Gross Premiums Written
$
123,704
$
61,914
$
512,062
$
275,981
Net Premiums Written
$
91,132
$
50,525
$
471,245
$
255,990
Net Premiums Earned
$
138,799
$
63,481
$
351,867
$
119,728
Net Investment Income
$
17,022
$
9,849
$
51,184
$
24,650
Net income
$
66,249
$
56,909
$
116,553
$
88,755
Total Shareholders' Equity
$
1,158,933
$
802,416
$
1,158,933
$
802,416
Combined Ratio (1)
61.9
%
44.5
%
75.9
%
52.2
%
Basic Earnings per Share
$
0.78
$
0.79
$
1.44
$
1.28
Diluted Earnings per Share (2)
$
0.77
$
0.79
$
1.44
$
1.27
Basic Book Value per Share
$
13.59
$
11.22
$
13.59
$
11.22
Diluted Book Value per Share
$
13.30
$
11.09
$
13.30
$
11.09
Growth in Basic Book Value per Share (3)
7.1
%
8.1
%
12.8
%
13.1
%
Growth in Diluted Book Value per Share (3)
7.1
%
8.0
%
11.7
%
12.5
%
(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, 2007 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 1,538,000 PSU’s
outstanding under the PSU plan as at September 30, 2007.
(3) Growth in basic book value per share
and diluted book value per share represent the increase in book
value in the period plus dividends paid.
Basic and diluted book value per share are non-GAAP financial measures.
A reconciliation of these measures to shareholders’
equity are presented at the end of this release.
Results of Operations Premiums
Gross premiums written for the third quarter of 2007 were $123.7
million, compared to $61.9 million for the same quarter of 2006, an
increase of 99.8% from the prior quarter. Gross premiums written for the
nine months ended September 30, 2007 were $512.1 million compared to
$276.0 million for the same period in 2006, an increase of 85.5% from
the prior period.
The increase in gross premiums written for both periods was due
primarily to: (i) increased participations on programs from our existing
clients and the addition of new clients due to our larger capital base
and growth in our franchise; and, (ii) the acquisition of the
controlling interest in Island Heritage in July 2007 which resulted in
the inclusion of $21.8 million in gross premiums for the quarter.
The gross premiums written in third quarter 2007 include $68.5 million
for property catastrophe, $36.1 million for other property, and $19.1
million for specialty compared to $41.3 million, $11.9 million and $8.7
million, respectively, for the same quarter in 2006.
The gross premiums written for the nine months ended September 30, 2007
include $373.8 million for property catastrophe, $84.5 million for other
property, and $53.8 million for specialty compared to $201.5 million,
$53.7 million and $20.8 million, respectively, for the same period in
2006.
Net premiums earned were $138.8 million for the third quarter of 2007
compared to $63.5 million for the same quarter of 2006. Net premiums
earned for the nine months ended September 30, 2007 were $351.9 million
compared to $119.7 million for the same period of 2006.
Net investment income and net realized and unrealized gains and
losses on investments
Net investment income for the third quarter of 2007 was $17.0 million,
compared to $9.8 million for the same quarter in 2006. Net investment
income for the nine months ended September 30, 2007 was $51.2 million,
compared to $24.7 million for the same period in 2006.
The increase in investment income for both periods reflects higher
average invested assets in our portfolio of high quality, short duration
fixed maturity and short term investments.
During the third quarter of 2007, the Company recorded $8.3 million of
net realized and unrealized gains compared to net realized and
unrealized gains of $10.8 million in the third quarter of 2006. As noted
in our first quarter, 2007 earnings press release, effective January 1,
2007 we early adopted SFAS 159, "The Fair
Value Option for Financial Assets and Financial Liabilities including an
amendment of FASB Statement No. 115”, ("SFAS
159”) with respect to our investment
portfolio. The impact is that all subsequent changes in the fair value
of our investment portfolio will be recorded as net realized and
unrealized gains (losses) in our statement of operations. For the three
months ended September 30, 2007, our net realized and unrealized gains
includes $8.1 million gain on our fixed maturity portfolio, $3.7 million
gain on our equity portfolio, $7.3 million loss on our derivative
instruments, and $3.8 million gain on other investments.
During the nine months ended September 30, 2007, the Company recorded
$10.9 million of net realized and unrealized gains compared to net
realized and unrealized gains of $2.2 million in the same period of
2006. For the nine months ended September 30, 2007, our net realized and
unrealized gains includes $3.1 million loss on our fixed maturity
portfolio, $6.9 million gain on our equity portfolio, and $6.4 million
gain on other investments.
Losses incurred
Losses and loss adjustment expenses were $37.4 million for the third
quarter of 2007, representing a loss ratio of 27.0% compared to $9.7
million and a loss ratio of 15.3% for the same quarter last year. The
third quarter of 2007 includes $10.3 million with respect to flooding
which impacted parts of Southern and Central England and Wales in July.
In the current quarter, the Company did not experience any deterioration
in the prior estimates for Windstorm Kyrill, the June 2007 United
Kingdom floods, and the New South Wales (Australia) flood losses.
Losses and loss adjustment expenses were $162.4 million for the nine
months ended September 30, 2007, representing a loss ratio of 46.2%
compared to $19.6 million and a loss ratio of 16.3% for the same period
last year. In addition to the July UK floods noted above, we incurred
gross losses of $33.8 million from Windstorm Kyrill which swept across
Northern Europe in January 2007, $31.0 million for United Kingdom flood
losses in Northern England in June 2007, $23.5 million for New South
Wales (Australia) flood losses, and $6.0 million for a Zenit Satellite
loss in January 2007. The first nine months of 2006 experienced light
catastrophe activity.
Expenses
Acquisition costs and general and administrative expenses were $48.6
million for the third quarter of 2007 representing an expense ratio of
34.9% compared to $18.6 million or 29.2% for the same quarter last year.
Included in these numbers were $2.0 million and $1.2 million for the
quarters ended September 30, 2007 and September 30, 2006, respectively,
relating to the expensing of share based equity compensation. Also
included in the September 30, 2007 results is $5.0 million of
acquisition costs and general and administrative expenses relating to
Island Heritage which are now included in the Company’s
consolidated results since the acquisition of the controlling interest
in Island Heritage in July 2007.
Acquisition costs and general and administrative expenses were $104.5
million for the nine months ended September 30, 2007 representing an
expense ratio of 29.7% compared to $42.9 million and 35.9% for the same
period in 2006. Included in these numbers were $6.2 million and $5.5
million for the nine month periods ended September 30, 2007 and
September 30, 2006, respectively, relating to the expensing of share
based equity compensation. Also included in the September 30, 2007
results is $5.0 million relating to Island Heritage noted above.
For the third quarter of 2007, the Company generated a combined ratio of
61.9%, compared to a combined ratio of 44.5% for the third quarter of
2006. For the nine months ended September 30, 2007, the Company
generated a combined ratio of 75.9%, compared to a combined ratio of
52.2% for the same period in 2006.
Interest expense
Interest expense for the third quarter of 2007 was $5.9 million,
compared to $1.3 million for the same quarter in 2006. Interest expense
for the nine months ended September 30, 2007 was $12.7 million, compared
to $1.3 million for the same period in 2006. Interest expense primarily
consists of interest due and amortization of debt offering costs on our
junior subordinated deferrable interest debentures which were issued in
August 2006, June 2007, and September 2007.
Minority interest
From January 1, 2007, the Company consolidates Mont Fort Re ("Mont
Fort"), a segregated accounts or "cell" company registered under the
Bermuda Segregated Accounts Companies Act 2000 (as amended) in
accordance with the provisions of FASB Interpretation No. 46 (revised)
Consolidation of Variable Interest Entities. As such, the results of
Mont Fort are included in the Company’s
unaudited consolidated financial statements and the portions of Mont Fort’s
net income and shareholders equity attributable to the preferred
shareholders are recorded in the consolidated financial statements of
the Company as minority interest.
Included in the Company's assets as at September 30, 2007 were cash,
cash equivalents and fixed maturity investments of $167.2 million held
for the sole benefit of preferred shareholders of each specific Mont
Fort cell and available to settle the specific current and future
liabilities of each cell.
On July 3, 2007, Flagstone purchased 73,110 shares (representing a 21.4%
interest) in Island Heritage for a purchase price of $12.6 million.
Island Heritage is a Caribbean property insurer based in the Cayman
Islands which targets the property insurance market. With this
acquisition, Flagstone took a controlling interest in Island Heritage by
increasing its interest to 54.6% of the voting shares. Flagstone’s
share of Island Heritage’s results from
operations was recorded in the Company’s
consolidated financial statements under the equity method of accounting
through June 30, 2007. As a result of the acquisition of the controlling
interest, the results of operations of Island Heritage have been
included in the Company’s consolidated
financial statements from July 1, 2007, with the portions of Island
Heritage’s net income and shareholders’
equity attributable to minority shareholders recorded as minority
interest in the Company’s consolidated
financial statements.
Shareholders’ equity
Shareholders' equity was $1.2 billion at September 30, 2007, compared to
$864.5 million at December 31, 2006. Diluted book value per share at
September 30, 2007 was $13.30, compared to $11.94 per share at December
31, 2006.
Declaration of quarterly dividend
On October 26, 2007, the Board of Directors declared a quarterly
dividend of $0.04 per common share. The dividend is payable on November
15, 2007 to shareholders of record at the close of business on October
31, 2007.
Regulation G
This earnings release includes diluted book value per share. This is a
non-GAAP financial measure and it has been reconciled to its most
comparable GAAP financial measure. Flagstone believes this measure to be
more relevant than comparable GAAP measures in evaluating Flagstone’s
financial performance. A reconciliation of this measure to shareholders’
equity is presented at the end of this release.
Additional information
Flagstone will host a conference call on Thursday November 8th,
2007 at 9.30 a.m. (EST) to discuss this release. Live broadcast of the
conference call will be available through the Investor Section of
Flagstone Re’s website at www.flagstonere.bm
Flagstone Reinsurance Holdings Limited, through its operating
subsidiaries, is a global reinsurance company headquartered in Bermuda.
Flagstone Re employs a focused, technical approach to the Property
Catastrophe, Property, and Specialty reinsurance business. Flagstone Re
and Flagstone Réassurance Suisse have
received "A-" financial strength ratings from both A.M. Best and Fitch
Ratings, and "A3" ratings from Moody's Investors Service.
The company is traded on the New York Stock Exchange under the symbol
FSR. Additional financial information and other items of interest are
available at the Company's website located at http://www.flagstonere.bm.
The Company expects to file its Form 10-Q with the Securities and
Exchange Commission on or before November 14, 2007 and urges
shareholders to refer to that document for more complete information
concerning Flagstone’s financial results.
Please refer to the September 30, 2007 Financial Supplement, which will
be posted on the Company’s website at www.flagstonere.bm
for more detailed financial information.
Unaudited Condensed Consolidated Statements of Operations and
Comprehensive Income – For the three
month and nine month periods ended September 30, 2007 and
September 30, 2006 (expressed in thousands of U.S. dollars, except
share and per share data)
For the Three Months Ended
For the Nine Months Ended Sept. 30,
Sept. 30, Sept. 30,
Sept. 30,
2007
2006
2007
2006
REVENUES
Gross premiums written
$
123,704
$
61,914
$
512,062
$
275,981
Reinsurance premiums ceded
(32,572
)
(11,389
)
(40,817
)
(19,991
)
Net premiums written
91,132
50,525
471,245
255,990
Change in net unearned premiums
47,667
12,956
(119,378
)
(136,262
)
Net premiums earned
138,799
63,481
351,867
119,728
Net investment income
17,022
9,849
51,184
24,650
Net realized and unrealized gains
8,298
10,827
10,911
2,206
Other income
1,961
1,216
2,885
3,225
Total revenues
166,080
85,373
416,847
149,809
EXPENSES
Loss and loss adjustment expenses
37,439
9,723
162,444
19,550
Acquisition costs
28,795
10,946
56,238
19,044
General and administrative expenses
19,763
7,649
48,232
23,898
Interest expense
5,873
1,291
12,657
1,291
Net foreign exchange gains
(1,842
)
(419
)
(3,180
)
(1,744
)
Total expenses
90,028
29,190
276,391
62,039
Income before income taxes, minority interest and interest in
earnings of equity investments
76,052
56,183
140,456
87,770
Provision for income tax
(229
)
(78
)
(351
)
(78
)
Minority interest
(9,317
)
-
(24,942
)
-
Interest in earnings of equity investments
(257
)
804
1,390
1,063
NET INCOME
$
66,249
$
56,909
$
116,553
$
88,755
Change in net unrealized gains (losses)
-
2,815
-
(769
)
Change in currency translation adjustment
8,310
(23
)
6,293
29
COMPREHENSIVE INCOME
$
74,559
$
59,701
$
122,846
$
88,015
Weighted average common shares outstanding—Basic
85,413,479
71,595,793
80,816,529
69,530,742
Weighted average common shares outstanding—Diluted
85,491,561
71,705,036
80,937,061
69,618,644
Net income per common share outstanding—Basic
$
0.78
$
0.79
$
1.44
$
1.28
Net income per common share outstanding—Diluted
$
0.77
$
0.79
$
1.44
$
1.27
Dividends declared per common share
$
0.04
$
-
$
0.04
$
-
Unaudited Condensed Consolidated Balance Sheets –
September 30, 2007 and December 31, 2006 (expressed in thousands
of U.S. dollars)
As at
As at September 30, 2007 December 31, 2006
ASSETS
Investments:
Fixed maturities, at fair value (Amortized cost: 2007 - $1,106,329;
2006 - $686,288)
$
1,102,328
$
682,278
Short term investments, at fair value (Cost: 2007 - $14,306; 2006 -
$nil)
14,242
-
Equity investments, at fair value (Cost: 2007 - $22,156; 2006 - $nil)
28,746
-
Other investments
289,340
74,496
Total Investments
1,434,656
756,774
Cash and cash equivalents
322,768
261,352
Reinsurance premium balances receivable
189,553
68,940
Unearned premiums ceded
22,491
8,224
Accrued interest receivable
7,534
6,331
Receivable for investments sold
-
3,599
Deferred acquisition costs
36,819
11,909
Funds withheld
6,606
-
Goodwill
11,556
5,624
Other assets
33,704
18,659
Due from related parties
1,009
3,090
Total Assets
$
2,066,696
$
1,144,502
LIABILITIES
Loss and loss adjustment expense reserves
$
161,442
$
22,516
Unearned premiums
252,096
98,659
Insurance and reinsurance balances payable
22,728
-
Payable for investments purchased
8,248
9,531
Long term debt
264,469
137,159
Other liabilities
26,076
11,866
Due to related parties
-
252
Total Liabilities
735,059
279,983
Minority Interest
172,704
-
SHAREHOLDERS' EQUITY
Common voting shares, 150,000,000 authorized, $0.01 par value,
issued and outstanding (2007 - 85,297,891; 2006 - 71,547,891)
853
715
Additional paid-in capital
903,220
728,378
Accumulated other comprehensive income (loss)
5,774
(4,528
)
Retained earnings
249,086
139,954
Total Shareholders' Equity
1,158,933
864,519
Total Liabilities, Minority Interest and Shareholders' Equity
$
2,066,696
$
1,144,502
Cautionary Statement under Safe Harbor Statement under the Private
Securities Litigation Reform Act of 1995.
This report may include forward-looking statements which reflect our
current views with respect to future events and financial performance.
Statements which include the words "expect," "intend," "plan,"
"believe," "project," "anticipate," "will" and similar statements of a
future or forward-looking nature identify forward-looking statements for
purposes of the U.S. federal securities laws or otherwise.
These statements include forward-looking statements both with respect to
us specifically and our industry in general. These statements are based
on certain assumptions and analyses made by us in light of our
experience and perception of historical trends, current conditions and
expected future developments, as well as other factors believed to be
appropriate in the circumstances. However, whether actual results and
developments will conform to our expectations and predictions is subject
to a number of risks and uncertainties that could cause actual results
to differ materially from expectations, including, but not limited to,
the following:
• the risks discussed on our
Form S-1 filed with the SEC on March 30, 2007 beginning on page 12
• cyclicality of demand and
pricing in the reinsurance market
• unpredictability and severity
of catastrophic events
• adequacy of our risk
management and loss limitation methods
• adequacy of our loss reserves
• our limited operating history
• dependence on key personnel
• dependence on the policies,
procedures and expertise of ceding companies
• potential loss of business
from one or more major reinsurance brokers
• potential for financial
strength rating downgrade
• risks inherent to our
acquisition strategy
• highly competitive business
environment and
• other factors, most of which
are beyond our control.
Accordingly, all of the forward-looking statements made in this report
are qualified by these cautionary statements, and there can be no
assurance that the actual results or developments anticipated by us will
be realized or, even if substantially realized, that they will have the
expected consequences to, or effects on, us or our business or
operations. We undertake no obligation to publicly update or review any
forward-looking statement, whether as a result of new information,
future developments or otherwise. All subsequent written and oral
forward-looking statements attributable to us or individuals acting on
our behalf are expressly qualified in their entirety by this paragraph.
You should specifically consider the factors identified in our Form S-1
filed with the SEC on March 30, 2007 which could cause actual results to
differ before making an investment decision.
Non-GAAP Financial Measures
In addition to the GAAP financial measures set forth in this Press
Release, we have presented "basic and diluted
book value per share” which are non GAAP
financial measures. We have included the diluted book value per share
measure because it takes into account the effect of dilutive securities
and therefore, we believe that this is a better measure of calculating
shareholder returns than basic book value per share.
Basic book value per share is defined as total shareholders’
equity divided by the number of common shares outstanding at the end of
the period, giving no effect to dilutive securities. Diluted book value
per share is defined as total shareholders' equity divided by the number
of common shares and common share equivalents outstanding at the end of
the period including all potentially dilutive securities such as the
Warrant, PSUs and RSUs. When the effect of securities would be
anti-dilutive, these securities are excluded from the calculation of
diluted book value per share. The Warrant was anti-dilutive and was
excluded from the calculation of diluted book value per share as at
September 30, 2007 and December 31, 2006.
Investors are cautioned not to place undue reliance on this non-GAAP
measure in assessing the Company's overall financial performance.
Book Value per Share (Unaudited)
As at
As at September 30, 2007 December 31, 2006 ($ in thousands, except share and per share data)
Shareholders' Equity
$
1,158,933
$
864,519
Potential net proceeds from assumed:
Exercise of PSU (1)
-
-
Exercise of RSU (1)
-
-
Conversion of warrant - ($14 strike price) (2)
-
-
Diluted Shareholders' Equity
$
1,158,933
$
864,519
Dividends declared and paid
$
3,412
$
-
Common shares outstanding - end of period
85,297,891
71,547,891
Potential shares to be issued:
PSUs outstanding
1,538,000
713,000
RSUs outstanding
326,538
117,727
Conversion of warrant - ($14 strike price) (2)
-
-
Common Shares Outstanding - Diluted
87,162,429
72,378,618
Basic book value per share
$
13.59
$
12.08
Diluted book value per share
$
13.30
$
11.94
(1) No proceeds due when exercised
(2) Below strike price - not dilutive
Bookmarken
