Flagstone Re Adjusts Business Focus; Cut Lloyd’s, Island Heritage

NU Online News Service, Oct. 25, 9:53 a.m. EDT

Flagstone Reinsurance Holdings says it will focus on the businesses it says produce the highest return on equity—property, property catastrophe and highest-margin short-tail specialty reinsurance.

Additionally, as part of a business realignment announced by the Luxembourg-based insurer and reinsurer, the company will sell its Lloyd's of London and Island Heritage operations.

Flagstone's managing agent for Syndicate 1861 specializes in excess marine, energy and aviation risks. Island Heritage is a Caribbean property insurer domiciled in Grand Cayman.

In a statement, Flagstone says it expects gross written premium to be reduced about $300 million per year as a result of the Lloyd's and Island Heritage divestitures, but with no impact on return on equity.

The moves will also save money by reducing infrastructure and the need for operational support, Flagstone says, while adding to excess capital for rating-agency capital requirements.

David Brown, Flagstone's chief executive, says the realignment will allow the company to “react quickly to market changes.”

He adds in a statement, “We will also continue to aggressively reduce expenses and bring expense ratios to competitive levels. By significantly streamlining our cost structure, we expect to have enhanced financial flexibility to pursue future opportunities to deliver greater value.”

The decisions, Flagstone says, were made after an 18-month examination of its underwriting strategy.

Flagstone says it will also adjust its geographic diversification to decrease the threat of frequency risk.

Rating agency A.M. Best Co. says Flagstone's new “streamlined structure” will allow it to “reduce its global risk profile and refocus on its core underwriting strategies.”

The company says it expects $35 million in losses (net of reinstatement premiums and retrocession) to its reinsurance segment due to Hurricane Irene, floods in Denmark and U.S. aggregate covers. Moreover, adjustments to loss estimates during the first half of the year will impact the third quarter by about $35 million.

Flagstone says its Lloyd's unit will report a $10 million net loss for the third quarter.

This year has been “one of the most active years in terms of catastrophic-loss events in history,” says Brown, but Flagstone predicts it will “benefit from a hardening rate environment.”

Flagstone is scheduled to release third-quarter results on Nov. 3 after the market closes.