Australian bushfires and European storms among major losses; premium income up.

Flagstone Re has announced a drop in first quarter 2009 operating income as a result of increased claims and natural catastrophes in its geographically diverse portfolio.

However, gross premiums written rose by 49.2% compared to the same period last year and stood at $361.5m for the first three months of 2009.

Operating income for the first quarter of 2009 was $31.3m, compared to $50.8m for the first quarter of 2008 – a drop of 38.4%.

The company’s combined ratio stood at 80.4%, compared to 66.9% in Q1 2008.

Flagstone Re CEO David Brown said he was pleased with the financial results.

“From an underwriting perspective, we performed well despite some international catastrophes, including Winter Storm Klaus and Australian bushfires,” he said.

“Due to the significant geographic diversification in our portfolio, we will expect to suffer losses more frequently from international events than those of our peers with more concentrated North American exposure. However, due to the increased premium leverage this diversification affords us, we are able to produce a superior loss ratio measured over time. We believe that our loss ratio over the last three years is among the best in our industry.

“We are very pleased with the renewal book of business written for the first quarter as we saw good rate increases both internationally and in North America. Furthermore, Japanese renewals showed rate increases for the first time in several years. On the back of this attractive market, we were able to reposition the portfolio strategically to lower our overall exposure and increase our premiums.”

He explained that the rise in gross premiums written was due in large part to the company’s new Lloyd’s acquisition, Marlborough, accounting for 41% of the 49.2% increase.

“We expect Marlborough to continue to generate attractive business in the short tail specialty lines it targets and materially add to our diversification. However, the impact on our bottom line will take some time to be recognised as the premiums earned from Marlborough were small this quarter but will increase as the year progresses.”

Brown added that Flagstone Re’s purchases of retrocessional cover in the last quarter of 2008 had proven valuable and should allow the company to write more of the attractive business being seen in the market.

Brown added: “We are now seeing mid-year renewal programmes come to the market and we anticipate is that the attractive market will continue to develop. We are bullish on the opportunities to present themselves to us and expect to take proper advantage of the situation.”