A.M. Best Assigns Ratings to Flagstone Reinsurance Limited.

OLDWICK, N.J. -- A.M. Best Co. has assigned a financial strength rating of A- (Excellent) and an issuer credit rating of "a-" to Flagstone Reinsurance Limited (Bermuda). The ratings have a stable outlook.

Flagstone will operate as a Bermuda-based reinsurance company primarily focused on property, property catastrophe and short-tail casualty coverage on a worldwide basis through the broker market. The company has been capitalized with $530 million in common equity from investors and management.

The ratings reflect Flagstone's strong risk-adjusted capitalization, which on a pro forma basis and after considering various stress test scenarios, remains in the excellent range over a five-year time period. This favorable capital position, enhanced by the absence of legacy issues, is further augmented by an experienced senior management team and sound business plan.

A.M. Best expects that Flagstone will be successful in executing its business plan by attaining favorable underwriting margins; that it will adhere to disciplined underwriting in targeted businesses and markets and that the anticipated pricing improvements and broader exclusions will benefit its underwriting performance over the near term.

A.M. Best is also of the opinion that Flagstone's risk management capability is adequate to protect its capital base from a loss outside of its planned risk tolerance. However, as with any start-up company, systems and operational controls relating to underwriting, risk management, claims, investments and financial reporting and the dexterity to maintain underwriting discipline have yet to be fully tested, including through the inevitable softening in the property reinsurance cycle. A.M. Best also remains concerned in regard to Flagstone's ability to recapitalize to a level which may be needed post a significant loss event.

In addition to being susceptible to low frequency high severity events, A.M. Best anticipates that Flagstone will be challenged by increased competition from both established companies and other new start-ups seeking to enter the industry. The additional capacity brought to the market could dampen expected returns if pricing of reinsurance coverage fails to meet anticipated levels. Furthermore, the ability of Flagstone to effectively build and retain market acceptance will only be proven over time. Accordingly, A.M. Best will closely monitor the quarterly performance of Flagstone against its stated operating plan and any material negative deviations in terms of management, earnings, capitalization or risk profile could result in downward pressure on the assigned ratings.

For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

For current Best's Ratings, independent data and analysis on more than 330 reinsurance companies, please visit www.ambest.com/reinsurance.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.