Reinsurer’s rating unaffected by move to Switzerland

AM Best has said that the ratings of Flagstone Reassurance Suisse SA (Flagstone Reassurance) (Martigny, Switzerland), Flagstone Reinsurance Limited (Flagstone Re) (Hamilton, Bermuda) and Flagstone Reinsurance Holdings Limited (Flagstone Holdings) (Hamilton, Bermuda) [NYSE:FSR] are unchanged following the recently announced organisational changes by Flagstone Holdings. This announcement includes the merger of its two reinsurance operating subsidiaries, Flagstone Reassurance and Flagstone Re, and the acquisition of a majority stake in Alliance International Reinsurance Public Company Limited (Alliance Re) (Cyprus) [CSE:ALL] by Flagstone Reassurance.

On August 18, 2008, Flagstone Holdings announced the reorganisation of Flagstone Reassurance and Flagstone Re into one merged entity, with Flagstone Reassurance as the surviving entity. Flagstone Holdings will continue to write business from Bermuda through the Bermuda branch of Flagstone Reassurance while also keeping its corporate headquarters located on the island. This restructuring consolidates the capital into one main operating entity resulting in capital efficiencies and streamlines the evaluation of capital adequacy within the rating process. Furthermore, it affords Flagstone Holdings’ clients access to a larger balance sheet enhancing the attractiveness of the company as a reinsurance partner.

Following the completion of this restructuring, the ratings of Flagstone Re will be terminated, and the ratings of Flagstone Reassurance will be analyzed on a stand along basis. However, it will have no effect on the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of Flagstone Reassurance.

On August 14, 2008, Flagstone Reassurance announced an offer to purchase the remaining shares of Alliance Re that it does not already own. Flagstone Reassurance seeks to acquire 100% of Alliance Re for consideration of EUR 0.48 a share, paid in cash. This will be accomplished through several transactions with multiple parties, including the chairman and CEO of Alliance Re, Khader Hamsi, and Executive Vice President Andreas Aloneftis, among others.

This transaction further develops Flagstone Holdings’ global operating strategy and is in line with other strategic investments made by the organisation. Furthermore, it is consistent with the strategy communicated to AM Best following Flagstone Reassurance’s initial investment in Alliance Re. This comment reflects the limited impact to Flagstone Holdings and its operating entities given the size of the additional investment relative to the group’s level of capitalisation.