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TEXT-Fitch may cut Flagstone Reinsurance Holdings SA
March 1, 2012 / 9:12 PM / 6 years ago

TEXT-Fitch may cut Flagstone Reinsurance Holdings SA

 (The following statement was released by the rating agency)	
 March 1 Fitch Ratings today placed the ratings of Flagstone Reinsurance
Holdings, S.A. (NYSE: FSR) and subsidiaries (collectively Flagstone) on Rating
Watch Negative. The rating action follows Fitch's normal periodic review. A full
list of ratings is included at the end of this release. 	
The Rating Watch reflects Fitch's heightened concerns about Flagstone's current 	
financial profile and recent operating performance. Fitch notes that Flagstone 	
suffered a high level of underwriting losses in 2011 that led to a steep decline	
in shareholders equity (30%) that was significantly greater than comparably 	
rated peers. 	
Fitch's concern is further heightened by Flagstone's modest size which presents 	
the possibility that further capital erosion could compromise Flagstone's 	
competitive viability. 	
Fitch anticipates resolving the Rating Watch in the second half of 2012 when the	
outcome of steps that Flagstone has taken, or is expected to take in the near 	
term, to improve its financial profile and operating performance, will become 	
more evident.  Upon resolution of the Rating Watch, Fitch's expectation is that 	
Flagstone's ratings will either be downgraded one notch or affirmed at their 	
current levels.      	
Specific factors that Fitch will evaluate at that time include the current and 	
perceived prospective underwriting profitability of the company's book of 	
business given re-underwriting steps the company undertook as part of the 	
January renewal season, the amount and perceived quality of business placed 	
during subsequent renewals, and current and prospective underwriting leverage 	
given these steps. 	
Additionally, Fitch's expectation is that Flagstone will successfully complete 	
the previously announced divestitures of its Lloyd's syndicate and its 	
Caribbean-based primary operations in the second quarter 2012. The agency 	
believes that these divestitures will be integral to Flagstone's ability to 	
reduce underwriting leverage and right-size the company's expense base.    	
Fitch further believes that a simpler, more cost efficient organizational 	
structure will enable Flagstone to focus on its core catastrophe reinsurance 	
lines. Going forward, Flagstone's expense base, historically high relative to 	
its closest peers, should decrease meaningfully, improving run rate 	
Fitch also notes favorably that Flagstone has revised its underwriting 	
guidelines to place additional constraints on exposed limits in geographic zones	
and has also reduced modeled losses from large catastrophe events in peak zones.	
Key rating triggers that could result in a ratings downgrade would include a 	
failure to significantly reduce underwriting leverage and generate positive 	
earnings momentum, or if the planned divestitures discussed above are not 	
completed within Flagstone's publicly targeted time frames at levels that 	
approximate or exceed each entity's current carrying value on Flagstone's 	
balance sheet.	
Key rating triggers that could result in a ratings affirmation include a 	
reduction in current and prospective underwriting leverage and a return to 	
overall profitability, coupled with the successful execution of the proposed 	
transactions discussed above. 	
If the ratings are affirmed, Fitch expects the Outlook at that time would be 	
Negative given recent trends.  	
Fitch expects to develop and provide additional ratings triggers upon resolution	
of the Rating Watch.  	
Fitch has placed the following ratings on Rating Watch Negative.  	
Flagstone Reassurance Suisse SA:	
--Insurer Financial Strength 'A-'.	
Flagstone Reinsurance Holdings, S.A. 	
--Long-term Issuer Default Rating (IDR) 'BBB+';	
--$120 million of floating rate subordinated debentures due Sept. 15, 2036 	
--Euro13 million of floating rate subordinated debentures due Sept. 15, 2036 	
--$25 million of floating rate subordinated debentures due Sept. 15, 2037 'BB+'.	
Flagstone Finance S.A.	
--Long-term IDR 'BBB+';	
--$100 million of floating rate subordinated debentures due July 30, 2037 'BB+'.	
 (Caryn Trokie, New York Ratings Unit)	

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