Flagstone Reinsurance Holdings Limited announced a 7.6 percent decline in net profit in the first quarter of 2008 compared to the same period in 2007, due mainly to investment losses.
The Bermuda-based reinsurer reported a net income of $32.9 million for the quarter, compared to $35.6 million in 2007.
The company's underwriting results were described as "very strong" by David Brown, Flagstone chief executive officer, in a statement. Net written premiums increased from $198.8 million in the first quarter of 2007 to 226.2 million in 2008.
Flagstone also reported a combined ratio of 66.9 for the quarter, compared to 74.3 in 2007.
Mr. Brown attributed the improved underwriting results to "a disciplined process of nonrenewing risks with inadequate pricing…and redeployment of capacity to more attractive programs."
Despite an active quarter with respect to natural catastrophes, Mr. Brown said "it has been relatively quiet for Flagstone, as most of the catastrophe exposures were contained within our clients' retentions."
On the market in general, Mr. Brown said, "To varying degrees, underwriting discipline is prevailing within the market."
He noted that pricing is "generally in line with our expectations, although we have been impacted by some significant increases in our U.S. clients' retentions, which has reduced the amount of premiums they are ceding. In addition, there was some modest weakening of rates in Europe."
On the investment side, Flagstone reported an increase in net investment income, from $13.6 million in the first quarter of 2007 to $18.7 million in the first quarter of 2008. But the company also reported net realized and unrealized loss on investments of $12.4 million for 2008, compared to a $4.5 million gain in the first quarter of 2007.
Flagstone Chairman Mark Byrne said, "The first quarter of 2008 was not pleasing from an investment returns perspective and was one of the most difficult investing periods in recent memory."
But Mr. Byrne expressed optimism for the future. "Our equity portfolio rebounded in April, regaining approximately 50 percent of the losses suffered in the first quarter of 2008," he said. "We continue to believe that our investment strategy to create a portfolio of diversified investment risks adds balance to a reinsurer's risk portfolio, resulting in higher and more stable returns over time and enhanced financial strength."
In a conference call, James O'Shaughnessy, chief financial officer of Flagstone Re, said the investment losses were due to a $37 million loss on the company's equity portfolio, partially offset by gains in fixed maturities and commodity positions. Mr. O'Shaughnessy also said the company does not have exposure to credit risks.
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