NU Online News Service, March 21, 1:12 p.m.EDT

Moody's Investors Service placed Flagstone Reinsurance Holdings’ratings under review due to the company’s expected losses fromfirst-quarter catastrophes.

Flagstone responded to the action, calling the reviewunwarranted and said Moody’s methodology is too subjective.

The ratings under review for possible downgrade, according toMoody’s, are Flagstone Reinsurance Holdings’ “Baa3” long-termissuer rating and the “A3” financial strength rating of thecompany’s principal subsidiary, Flagstone Reassurance SuisseS.A.

Moody’s said Flagstone is likely to incur “material losses” fromfirst-quarter catastrophes. The rating agency noted that Flagstoneestimated losses of between $60 million and $80million for Australian floods in January and Cyclone Yasi inFebruary. The estimated losses for those two events account for5.3-7 percent of the company’s equity, Moody’s noted.

Flagstone’s estimated losses of between $60 million and $90million for February’s New Zealand earthquake account for another5.3-7.9 percent of equity, Moody’s said.

“The company has yet to disclose its loss estimates for theMarch 11 earthquake in Japan, but Moody's expects that thereinsurer will incur losses from this event given its geographicrisk profile,” the rating agency added.

Kevin Lee, a senior credit officer at Moody's, said in astatement: “Moody's considers the size of the losses from theAustralian floods and New Zealand earthquake to be out of step inrelation to the limited size of the company. In the coming months,we will review Flagstone's strategy and risk tolerance, includingits approach to allocating notional limits by geographiczones.”

In a responding statement, Flagstone said: “Despite the level ofindustry-wide losses as a result of events during the firstquarter, the company believes its financial position remainsstrong. Accordingly, Flagstone is disappointed in Moody's decisionto place the company's ratings under review and believes the actionis unwarranted.”

Flagstone added that it believes Moody's decision to review“relies too much on subjective criteria rather than the modeledfinancial strength of the company and Moody's subjective approachhas been an ongoing concern of the company.”

The Luxembourg-based company also said it doesn’t believe thatMoody's has adequately assessed Flagstone’s “limited exposure tofuture events and the significant reinsurance protection it has inplace.”

Moody’s did note in its comment that Flagstone appears to havemeaningful reinsurance protections in place to manage losses fromfuture catastrophes. “Nevertheless, the company's meaningfulreliance on reinsurance in order to support its underwritingstrategy has its own risks, as it exposes the company to shifts inthe availability and pricing of such protection to a somewhatgreater degree than peers,” according to Moody’s.

Moody’s pointed out that on Dec. 8, 2010, it had continued anegative outlook for Flagstone's ratings because of increasedunderwriting leverage, higher catastrophe exposure and a lowerassessment of capital adequacy.

In its review, Moody's said it will seek more clarity onFlagstone's losses from the first-quarter disasters and assess thecompatibility of the company’s strategy and risk appetite with itscurrent ratings.

Flagstone said it maintains its "A-minus" rating by A.M. Bestand "A-minus" rating by Fitch Ratings. The company said the “AMBest rating in particular is its principal rating for theassessment of financial strength and the ability to conductbusiness in the insurance and reinsurance market.”