Q1 catastrophes likely to result in “material losses” for the reinsurer

Rating agency Moody’s has placed Flagstone Re’s A3 financial strength rating under review for a possible downgrade.

The decision follows a series of natural disasters in the first quarter which Moody’s contends is likely to result in a material loss for Flagstone.

In its rating review, the agency will seek more clarity on Flagstone's losses from these disasters and assess the compatibility of its strategy and risk appetite with its current ratings.

Flagstone has estimated its losses, net of reinsurance, for January's Australian floods and February's Cyclone Yasi to be $60-80m (5.3%-7.0% of Flagstone equity) and for February's New Zealand earthquake to be $60-90m (5.3%-7.9% of Flagstone equity). The company has yet to disclose its loss estimates for the 11 March earthquake in Japan but Moody's expects that the reinsurer will incur losses from this event given its geographic risk profile.

"Moody's considers the size of the losses from the Australian floods and New Zealand earthquake to be out of step in relation to the limited size of the company," said Kevin Lee, a senior credit officer at Moody's, in a statement. "In the coming months, we will review Flagstone's strategy and risk tolerance, including its approach to allocating notional limits by geographic zones."

Previously, on December 8, 2010, Moody's had continued the negative outlook for Flagstone's ratings because of increased underwriting leverage, higher catastrophe exposure and a lower assessment of capital adequacy.