Partially offsetting the positives are the effects of the company's limited operating history

Fitch Ratings has affirmed its 'A-' insurer financial strength (IFS) ratings on Flagstone Reinsurance Limited (Flagstone Bermuda) and Flagstone Reassurance Suisse SA (Flagstone Suisse).

The ratings reflect the companies' (collectively Flagstone) strong capital position, recent favourable operating results, and well-designed risk management practices and operating platforms.

Partially offsetting these positives are the effects of the company's limited operating history and comparatively small size in the global reinsurance market.

Fitch believes that Flagstone uses a rigorous underwriting process to evaluate potential insured risks' zonal aggregate limits, pricing adequacy, and return characteristics on both an individual contract and portfolio basis.

Additionally, the rating agency believes that Flagstone's capital position provides strong protection against the underwriting and investment risks the company faces.

The analysis of Flagstone's capital position included running the company through the agency's Prism capital model, making various adjustments to account for Flagstone's comparatively short operating history and for its Bermuda-domicile.

Using this approach, Flagstone's year-end 2007 Prism score was comfortably in the 'AAA' range.

Flagstone has gradually diversified beyond its roots as a property/catastrophe reinsurer with a North American focus. Fitch views the company's diversification strategy favorably because it reduces the company's reliance on any single product and market and reduces the company's proportionate earnings and capital exposure to catastrophe-related losses.

Fitch typically views expansion beyond core competencies cautiously, especially when, as in Flagstone's case, it is derived in part from acquisitions.

However the agency believes that Flagstone's expansion strategy, while providing new product access or market access, has carried comparatively little financial or integration risk.

Fitch's equivalent ratings on Flagstone Bermuda and its Switzerland domiciled indirect subsidiary Flagstone Suisse, reflect the agency's belief that Flagstone Suisse is strategically important to the Flagstone organization's overall operations and business strategy.

The equivalent ratings also reflect the benefits of a guaranty by Flagstone Bermuda of Flagstone Suisse's insurance obligations entered into through 2011, and the existence of a stop-loss reinsurance contract with a 125% loss ratio trigger, between the two companies effective through 2009.

On an equity-credit adjusted basis, FSR's ratio of debt-to-capital at March 31, 2008 was a modest 4%. The company's annual interest requirements are modest and operating earnings-based interest coverage has been strong at 14.5x through Q1 2008 and 12.5x in 2007.

Fitch's IDR on Flagstone Finance and its ratings on the company's outstanding subordinated debentures, reflect the effect of an unconditional guaranty in place between FSR and Flagstone Finance.