sup.htm

Flagstone Reinsurance Holdings Limited
FINANCIAL SUPPLEMENT TABLE OF CONTENTS

		Page(s)

	Basis of Presentation	i

	Cautionary Statement Regarding Forward-Looking Statements	ii

	Regulation G - Non-GAAP Financial Measures	iii

	I. Financial Highlights	1

	II. Income Statements
	a. Consolidated Statements of Income (Loss) - Quarterly	2
	b. Segment Reporting	3
	c. Gross Premiums Written by Line of Business and Geographic Area of Risk	4

	III. Consolidated Balance Sheets	5

	IV. Investment Portfolio Composition	6

	V. Loss Reserve - Paid to Incurred Analysis	7

	VI. Share Analysis
	a. Capitalization	8
	b. Earnings Per Common Share Information - As Reported	9
	c. Basic and Diluted Book Value Per Common Share Analysis	10

	VII. Mont Fort Consolidation
	a. Balance Sheet Consolidation	11
	b. Income Statement Consolidation	12

	VIII. Non-GAAP Financial Measure Reconciliation	13

Flagstone Reinsurance Holdings Limited
BASIS OF PRESENTATION


	DEFINITIONS AND PRESENTATION

	•	Unless otherwise noted, all data is in thousands, except for share, per share amounts and ratio information.

	•	The debt to capitalization ratio is an indication of the leverage of the Company. It is calculated by dividing the Company’s long term debt by the total capital. Total capital represents the sum of Flagstone shareholders’ equity plus long term debt.

	•	N/A - means not applicable.

	•	In presenting the Company’s results, management has included and discussed certain “non-GAAP” financial measures, as such term is defined in Regulation G promulgated by the SEC. Management believes that these non-GAAP measures, which may be defined differently by other companies, better explain the Company’s results of operations in a manner that allows for a more complete understanding of the underlying trends in the Company’s business. However, these measures should not be viewed as a substitute for those determined in accordance with GAAP. The reconciliation of such non-GAAP financial measures to their respective most directly comparable GAAP financial measures in accordance with Regulation G is included in this financial supplement.

Flagstone Reinsurance Holdings Limited

Cautionary Statement Regarding Forward-Looking Statements:

This report may contain, and the Company may from time to time make, written or oral “forward-looking statements” within the meaning of the U.S. federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties and other factors, many of which are outside the Company’s control, that could cause actual results to differ materially from such statements. In particular, statements using words such as “may”, “should”, “estimate”, “expect”, “anticipate”, “intend”, “believe”, “predict”, “potential”, or words of similar import generally involve forward-looking statements.

Important events and uncertainties that could cause the actual results to differ include, but are not necessarily limited to: market conditions affecting the Company’s common share price; the impact of the current unprecedented volatility in the financial markets, including the duration of the crisis and the effectiveness of governmental solutions; the weakening economy, including the impact on our customers’ businesses; fluctuations in interest rates; the effects of corporate bankruptcies on capital markets; the possibility of severe or unanticipated losses from natural or man-made catastrophes; the effectiveness of our loss limitation methods; our dependence on principal employees; the cyclical nature of the reinsurance business; the levels of new and renewal business achieved; opportunities to increase writings in our core property and specialty reinsurance and insurance lines of business and in specific areas of the casualty reinsurance market; the sensitivity of our business to financial strength ratings established by independent rating agencies; the estimates reported by cedents and brokers on pro-rata contracts and certain excess of loss contracts where the deposit premium is not specified in the contract; the inherent uncertainties of establishing reserves for loss and loss adjustment expenses, our reliance on industry loss estimates and those generated by modeling techniques; unanticipated adjustments to premium estimates; changes in the availability, cost or quality of reinsurance or retrocessional coverage; changes in general economic conditions; changes in governmental regulation or tax laws in the jurisdictions where we conduct business; the amount and timing of reinsurance recoverables and reimbursements we actually receive from our reinsurers; the overall level of competition, and the related demand and supply dynamics in our markets relating to growing capital levels in the reinsurance industry; declining demand due to increased retentions by cedents and other factors; the impact of terrorist activities on the economy; and rating agency policies and practices.

These and other events that could cause actual results to differ are discussed in more detail from time to time in our filings with the SEC. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by U.S. federal securities laws. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made.

Flagstone Reinsurance Holdings Limited
REGULATION G
NON-GAAP FINANCIAL MEASURES

In presenting the Company’s results, management has included and discussed non-GAAP financial measures. Management believes that these non-GAAP measures, which may be defined differently by other companies, better explain the Company’s results of operations in a manner that allows for a more complete understanding of the underlying trends in the Company’s business. However, these measures should not be viewed as a substitute for those determined in accordance with GAAP.
BASIC BOOK VALUE PER SHARE

Basic book value per common share is defined as total Flagstone shareholders’ equity divided by the number of common shares outstanding at the end of the period plus vested restricted share units, giving no effect to dilutive securities.

DILUTED BOOK VALUE PER SHARE

The Company has included diluted book value per common share because it takes into account the effect of dilutive securities, therefore, the Company believes it is a better measure of calculating shareholder returns than basic book value per common share. Diluted book value per common share is defined as total Flagstone shareholders’ equity divided by the number of common shares and common share equivalents outstanding at the end of the period including all potentially dilutive securities such as the warrant, performance share units and restricted share units. When the effect of securities would be anti-dilutive, these securities are excluded from the calculation of diluted book value per common share. The warrant was anti-dilutive and was excluded from the calculation of diluted book value per common share as at December 31, 2009 and December 31, 2008.

ANNUALIZED NET OPERATING RETURN ON AVERAGE FLAGSTONE SHAREHOLDERS’ EQUITY

Annualized net operating return on average Flagstone shareholders’ equity is defined as net operating income (net income attributable to Flagstone adjusted for net realized and unrealized gains (losses) - investments, net realized and unrealized gains (losses) - other, net foreign exchange losses (gains), and non-recurring items) divided by average Flagstone shareholders’ equity (the sum of opening and closing Flagstone shareholders’ equity divided by two). The result is then annualized (a statistical technique whereby figures covering a period of less than one year are extended to cover a 12 month period).

DILUTED NET OPERATING INCOME PER SHARE

Diluted net operating income per share is defined as net income attributable to Flagstone adjusted for net realized and unrealized gains (losses) - investments, net realized and unrealized gains (losses) - other, net foreign exchange losses (gains), and non-recurring items divided by diluted weighted average common shares outstanding.


HIGHLIGHTS		Quarter ended						Year ended
	December 31, 2009				December 31, 2008			December 31, 2009			December 31, 2008

Gross premiums written		$	123,707		$	95,246		$	988,491		$	781,889
Net premiums written		$	102,877		$	84,488		$	792,469		$	694,698
Net premiums earned		$	203,127		$	188,503		$	758,455		$	654,168
Net investment income		$	8,859		$	3,367		$	28,531		$	51,398
Net income (loss) attributable to Flagstone		$	71,505		$	(75,562	)	$	242,192		$	(187,302	)
Net operating income (1)		$	58,432		$	44,235		$	194,502		$	96,484
Comprehensive income (loss) attributable to Flagstone		$	71,861		$	(92,441	)	$	243,487		$	(202,999	)
Cash flow from operating activities		$	78,288		$	(20,646	)	$	338,449		$	228,407
Loss and loss adjustment expense reserves		$	480,660		$	411,565		$	480,660		$	411,565
Flagstone shareholders’ equity		$	1,211,018		$	986,013		$	1,211,018		$	986,013


PER COMMON SHARE AND
COMMON SHARE DATA

Basic earnings (loss) per common share		$	0.86		$	(0.89	)	$	2.87		$	(2.20	)
Diluted earnings (loss) per common share		$	0.86		$	(0.89	)	$	2.87		$	(2.20	)
Diluted net operating income per common share (1)		$	0.70		$	0.52		$	2.30		$	1.13
Basic weighted average common shares outstanding			83,071,505			84,878,518			84,279,777			85,328,704
Diluted weighted average common shares outstanding			83,294,463			84,878,518			84,503,792			85,328,704
Book value per common share		$	14.56		$	11.61		$	14.56		$	11.61
Diluted book value per common share		$	13.97		$	11.30		$	13.97		$	11.30
Diluted book value per common share plus accumulated dividends		$	14.37		$	11.53		$	14.37		$	11.53
Dividend per share declared during the period		$	0.04		$	0.04		$	0.16		$	0.16

FINANCIAL RATIOS
Change in diluted book value per share (2)			6.0	%		(10.1	)%		24.6	%		(17.3	)%

Loss ratio			33.9	%		44.6	%		37.3	%		58.1	%
Acquisition cost ratio			18.2	%		14.3	%		18.0	%		16.2	%
General and administrative expense ratio			21.2	%		17.0	%		19.4	%		15.1	%
Combined ratio			73.3	%		75.9	%		74.7	%		89.4	%



INVESTMENT DATA
Total assets		$	2,566,768		$	2,215,970		$	2,566,768		$	2,215,970
Total cash and investments (3)		$	1,950,246		$	1,709,928		$	1,950,246		$	1,709,928

(1) Net operating income is defined as net income attributable to Flagstone adjusted for net realized and unrealized gains (losses) – investments, net realized and unrealized gains (losses) – other,
net foreign exchange losses (gains) and non-recurring items.
(2) Change in diluted book value per share represents the increase (decrease ) in diluted book value per share in the period plus dividends declared.
(3) Cash and investments represents the total cash and cash equivalents, restricted cash, fixed maturity investments, short term investments, equities, other investments, accrued interest receivable and net payable for investments purchased.

	Flagstone Reinsurance Holdings Limited
	CONSOLIDATED STATEMENTS OF INCOME (LOSS) - QUARTERLY (Unaudited)
	Quarter ended
	Quarter ended															Year ended
	December 31, 2009			September 30, 2009			June 30, 2009			March 31, 2009			December 31, 2008			December 31, 2009			December 31, 2008
REVENUES																			(audited)
Gross premiums written	$	123,707		$	174,590		$	328,709		$	361,485		$	95,246		$	988,491		$	781,889
Premiums ceded		(20,830	)		(39,781	)		(59,742	)		(75,669	)		(10,758	)		(196,022	)		(87,191	)
Net premiums written		102,877			134,809			268,967			285,816			84,488			792,469			694,698
Change in net unearned premiums		100,250			60,708			(81,991	)		(112,981	)		104,015			(34,014	)		(40,530	)
Net premiums earned		203,127			195,517			186,976			172,835			188,503			758,455			654,168
Net investment income (loss)		8,859			10,779			10,646			(1,753	)		3,367			28,531			51,398
Net realized and unrealized gains (losses) - investments		13,199			21,286			7,082			(1,899	)		(111,778	)		39,668			(272,206	)
Net realized and unrealized gains (losses) - other		(20	)		1,373			2,470			7,430			13,761			11,253			11,617
Other income		9,957			4,269			2,333			5,169			2,946			21,728			8,215
Total revenues		235,122			233,224			209,507			181,782			96,799			859,635			453,192

EXPENSES
Loss and loss adjustment expenses		68,775			80,175			57,641			76,594			84,051			283,185			379,884
Acquisition costs		37,007			35,224			36,203			28,037			26,907			136,471			105,734
General and administrative expenses		37,111			32,050			31,619			30,427			27,537			131,207			99,351
Stock based compensation expense		5,883			3,216			2,959			3,873			4,455			15,931			(325	)
Interest expense		2,615			2,814			3,119			3,557			4,626			12,105			18,297
Net foreign exchange (gains) losses		106			2,390			(362	)		1,097			18,215			3,231			21,477
Total expenses		151,497			155,869			131,179			143,585			165,791			582,130			624,418

Income (loss) before income taxes and interest in earnings of equity investments		83,625			77,355			78,328			38,197			(68,992	)		277,505			(171,226	)
Provision for income tax		(5,336	)		(532	)		(250	)		706			714			(5,412	)		(1,178	)
Interest in loss of equity investments		(308	)		(370	)		(300	)		(378	)		(824	)		(1,356	)		(1,299	)
Net income (loss)		77,981			76,453			77,778			38,525			(69,102	)		270,737			(173,703	)
Less: (Income) loss attributable to noncontrolling interest		(6,476	)		(9,323	)		(9,964	)		(2,782	)		(6,460	)		(28,545	)		(13,599	)
NET INCOME (LOSS) ATTRIBUTABLE TO FLAGSTONE	$	71,505		$	67,130		$	67,814		$	35,743		$	(75,562	)	$	242,192		$	(187,302	)

Income (loss) before noncontrolling interest	$	77,981		$	76,453		$	77,778		$	38,525		$	(69,102	)	$	270,737		$	(173,703	)
Change in currency translation adjustment		(10	)		(4,656	)		5,399			1,867			(17,381	)		2,600			(16,251	)
Change in defined benefit pension plan obligation		(23	)		480			(145	)		(176	)		(422	)		136			(887	)
Comprehensive income (loss)		77,948			72,277			83,032			40,216			(86,905	)		273,473			(190,841	)
Less: Comprehensive (income) loss attributable to noncontrolling interest		(6,087	)		(9,577	)		(11,743	)		(2,579	)		(5,536	)		(29,986	)		(12,158	)

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO FLAGSTONE	$	71,861		$	62,700		$	71,289		$	37,637		$	(92,441	)	$	243,487		$	(202,999	)

KEY RATIOS

Loss ratio		33.9	%		41.0	%		30.8	%		44.3	%		44.6	%		37.3	%		58.1	%
Acquisition cost ratio		18.2	%		18.0	%		19.4	%		16.2	%		14.3	%		18.0	%		16.2	%
General and administrative expense ratio (1)		21.2	%		18.0	%		18.5	%		19.9	%		17.0	%		19.4	%		15.1	%
Combined ratio		73.3	%		77.0	%		68.7	%		80.4	%		75.9	%		74.7	%		89.4	%

PER COMMON SHARE DATA
Weighted average common shares outstanding - basic		83,071,505			84,004,784			85,070,001			85,070,001			84,878,518			84,279,777			85,328,704
Weighted average common shares outstanding - diluted (2)		83,294,463			84,176,602			85,162,981			85,208,294			84,878,518			84,503,792			85,328,704

Basic earnings (loss) per common share	$	0.86		$	0.80		$	0.80		$	0.42		$	(0.89	)	$	2.87		$	(2.20	)
Diluted earnings (loss) per common share	$	0.86		$	0.80		$	0.80		$	0.42		$	(0.89	)	$	2.87		$	(2.20	)

(1) The general and administrative expense ratio is inclusive of general and administrative expenses and stock based compensation expense.
(2) Dilutive share equivalents have been excluded in the weighted average common shares used for the calculation of diluted earnings per share in periods of net loss because the effect of such securities would be anti-dilutive.

Flagstone Reinsurance Holdings Limited
SEGMENT REPORTING (Unaudited)

	Three months ended December 31, 2009															Three months ended December 31, 2008
	Reinsurance			Lloyd's			Insurance			Inter segment Eliminations (1)			Total			Reinsurance			Insurance			Inter segment Eliminations (1)			Total

Gross premiums written	$	81,452		$	35,940		$	14,214		$	(7,899	)	$	123,707		$	86,566		$	13,438		$	(4,758	)	$	95,246
Premiums ceded		(20,238	)		3,263			(11,754	)		7,899			(20,830	)		(7,942	)		(7,574	)		4,758			(10,758	)
Net written premiums		61,214			39,203			2,460			-			102,877			78,624			5,864			-			84,488
Net premiums earned	$	177,405		$	23,635		$	2,087		$	-		$	203,127		$	186,509		$	1,994		$	-		$	188,503
Other related income		81			4,862			6,153			(3,948	)		7,148			(151	)		5,085			(3,624	)		1,310
Loss and loss adjustment expenses		(52,079	)		(16,516	)		(180	)		-			(68,775	)		(83,192	)		(859	)		-			(84,051	)
Acquisition costs		(30,970	)		(6,076	)		(3,909	)		3,948			(37,007	)		(26,619	)		(3,912	)		3,624			(26,907	)
General and administrative expenses (2)		(34,426	)		(4,420	)		(4,148	)		-			(42,994	)		(29,296	)		(2,696	)		-			(31,992	)
Underwriting Income (Loss)	$	60,011		$	1,485		$	3		$	-		$	61,499		$	47,251		$	(388	)	$	-		$	46,863
Loss ratio (3)		29.4	%		69.9	%		2.2	%					33.9	%		44.6	%		12.1	%					44.6	%
Acquisition cost ratio (3)		17.5	%		25.7	%		47.4	%					18.2	%		14.3	%		55.3	%					14.3	%
General and administrative expense ratio (3)		19.4	%		18.7	%		50.3	%					21.2	%		15.7	%		38.1	%					17.0	%
Combined ratio (3)		66.3	%		114.3	%		99.9	%					73.3	%		74.6	%		105.5	%					75.9	%
Total Assets	$	2,298,821		$	177,355		$	90,592					$	2,566,768		$	2,167,853		$	48,117					$	2,215,970




	Year ended December 31, 2009															Year ended December 31, 2008
	Reinsurance			Lloyd's			Insurance			Inter segment Eliminations (1)			Total			Reinsurance			Insurance			Inter segment Eliminations (1)			Total

Gross premiums written	$	796,984		$	145,889		$	84,239		$	(38,621	)	$	988,491		$	740,169		$	76,926		$	(35,206	)	$	781,889
Premiums ceded		(140,850	)		(18,504	)		(75,289	)		38,621			(196,022	)		(46,638	)		(75,759	)		35,206			(87,191	)
Net written premiums		656,134			127,385			8,950			-			792,469			693,531			1,167			-			694,698
Net premiums earned	$	689,544		$	62,130		$	6,781		$	-		$	758,455		$	641,500		$	12,668		$	-		$	654,168
Other related income		3,622			8,749			20,968			(14,187	)		19,152			305			13,247			(9,691	)		3,861
Loss and loss adjustment expenses		(241,358	)		(40,847	)		(980	)		-			(283,185	)		(377,228	)		(2,656	)		-			(379,884	)
Acquisition costs		(121,837	)		(14,608	)		(14,213	)		14,187			(136,471	)		(101,528	)		(13,897	)		9,691			(105,734	)
General and administrative expenses (2)		(119,555	)		(15,904	)		(11,679	)		-			(147,138	)		(90,026	)		(9,000	)		-			(99,026	)
Underwriting Income (Loss)	$	210,416		$	(480	)	$	877		$	-		$	210,813		$	73,023		$	362		$	-		$	73,385
Loss ratio (3)		35.0	%		65.7	%		3.5	%					37.3	%		58.8	%		10.2	%					58.1	%
Acquisition cost ratio (3)		17.7	%		23.5	%		51.2	%					18.0	%		15.8	%		53.6	%					16.2	%
General and administrative expense ratio (3)		17.3	%		25.6	%		42.1	%					19.4	%		14.0	%		34.7	%					15.1	%
Combined ratio (3)		70.0	%		114.8	%		96.8	%					74.7	%		88.6	%		98.5	%					89.4	%
Total Assets	$	2,298,821		$	177,355		$	90,592					$	2,566,768		$	2,167,853		$	48,117					$	2,215,970


(1) Inter segment eliminations relate to Flagstone Suisse quota share arrangements with Island Heritage and beginning in 2009, also with Lloyd's.
(2) General and administrative expenses includes stock based compensation expense.
(3) For insurance segment all ratios calculated using expenses divided by net premiums earned plus other related income.

Flagstone Reinsurance Holdings Limited
GROSS PREMIUMS WRITTEN BY LINE OF BUSINESS AND
GEOGRAPHIC AREA OF RISK (Unaudited)



	Year ended December 31, 2009					Year ended December 31, 2008
	Gross premiums written		% of total			Gross premiums written		% of total
Line of Business (1)
Property catastrophe	$	468,158		47.4	%	$	457,549		58.5	%
Property		202,378		20.5	%		94,706		12.1	%
Short-tail specialty and casualty		233,716		23.6	%		152,708		19.5	%
		904,252		91.5	%		704,963		90.1	%
Insurance		84,239		8.5	%		76,926		9.9	%
Total	$	988,491		100.0	%	$	781,889		100.0	%


	Year ended December 31, 2009					Year ended December 31, 2008
	Gross premiums written		% of total			Gross premiums written		% of total
Geographic area of risk insured(2)
Caribbean(3)	$	93,628		9.5	%	$	88,482		11.3	%
Europe		122,269		12.4	%		104,185		13.4	%
Japan and Australasia		58,633		5.9	%		47,866		6.1	%
North America		392,375		39.7	%		359,684		46.0	%
Worldwide risks(4)		244,416		24.7	%		153,442		19.6	%
Other		77,170		7.8	%		28,230		3.6	%
Total	$	988,491		100.0	%	$	781,889		100.0	%

(1) Gross premiums written relating to the Lloyd’s segment are primarily included in short-tail specialty and casualty and property.
(2) Except as otherwise noted, each of these categories includes contracts that cover risks located primarily in the designated geographic area.
(3) Gross premiums written relating to the Insurance segment are included in the Caribbean geographic area.
(4) This geographic area includes contracts that cover risks in two or more geographic zones.

Flagstone Reinsurance Holdings Limited
CONSOLIDATED BALANCE SHEETS (Unaudited)

	As at
		December 31, 2009			September 30, 2009		June 30, 2009			March 31, 2009				December 31, 2008
ASSETS
Investments:
Fixed maturity investments, at fair value	$	1,228,561		$	1,250,939		$	1,077,479		$	944,520		$	784,355
Short term investments, at fair value		232,434			202,711			229,837			124,907			30,413
Other investments		46,224			49,756			56,934			55,169			59,968
Total Investments		1,507,219			1,503,406			1,364,250			1,124,596			874,736

Cash and cash equivalents		370,415			334,730			378,232			603,950			783,705
Restricted cash		67,686			52,370			79,561			41,644			42,403
Premium balances receivable		278,956			376,584			453,668			363,382			218,287
Unearned premiums ceded		52,690			80,907			85,563			68,014			31,119
Reinsurance recoverable		19,270			15,996			16,810			11,582			16,422
Accrued interest receivable		11,223			9,318			9,554			6,840			7,226
Receivable for investments sold		5,160			27,410			11,114			14,578			9,634
Deferred acquisition costs		54,637			67,088			70,484			59,970			44,601
Funds withheld		22,168			21,890			18,676			12,425			14,433
Goodwill		16,533			16,496			16,541			16,022			17,141
Intangible assets		35,790			35,666			36,850			32,531			32,873
Other assets		125,021			102,006			113,095			116,505			123,390
TOTAL ASSETS	$	2,566,768		$	2,643,867		$	2,654,398		$	2,472,039		$	2,215,970

LIABILITIES
Loss and loss adjustment expense reserves	$	480,660		$	471,954		$	453,490		$	429,802		$	411,565
Unearned premiums		330,416			459,087			522,681			421,218			270,891
Insurance and reinsurance balances payable		62,864			65,974			46,214			51,641			31,123
Payable for investments purchased		11,457			37,944			16,249			28,762			7,776
Long term debt		252,402			252,774			251,987			265,306			252,575
Other liabilites		63,155			60,173			57,220			51,158			58,577
TOTAL LIABILITIES		1,200,954			1,347,906			1,347,841			1,247,887			1,032,507

EQUITY

Common voting shares		850			849			849			849			848
Common shares held in treasury		(20	)		(20	)		-			-			-
Additional paid-in capital		892,817			887,829			904,228			901,344			897,344
Accumulated other comprehensive loss		(6,976	)		(7,332	)		(2,902	)		(6,377	)		(8,271	)
Retained earnings		324,347			256,289			192,604			128,307			96,092
Total Flagstone Shareholders' Equity		1,211,018			1,137,615			1,094,779			1,024,123			986,013
Noncontrolling Interest in Subsidiaries (1)		154,796			158,346			211,778			200,029			197,450
TOTAL EQUITY		1,365,814			1,295,961			1,306,557			1,224,152			1,183,463

TOTAL LIABILITIES AND EQUITY	$	2,566,768		$	2,643,867		$	2,654,398		$	2,472,039		$	2,215,970

Basic book value per common share	$	14.56		$	13.69		$	12.87		$	12.04		$	11.61

Diluted book value per common share	$	13.97		$	13.20		$	12.42		$	11.60		$	11.30

Debt to total capitalization (2)		17.2	%		18.2	%		18.7	%		20.6	%		20.4	%

(1) Noncontrolling Interest in Subsidiaries includes Mont Fort Re (see Pages 11 and 12 for additional information), Island Heritage, Flagstone Reinsurance Africa (nil at December 31, 2009) and IAL King Air Limited (with effect from October 1, 2009).
(2) Comprises long term debt divided by the sum of long term debt plus Flagstone shareholders' equity.

Flagstone Reinsurance Holdings Limited
INVESTMENT PORTFOLIO COMPOSITION (Unaudited)


	As at
TYPE OF INVESTMENT	December 31, 2009				September 30, 2009				June 30, 2009				March 31, 2009				December 31, 2008
U.S. government and agency securities	$	431,715	28.6	%	$	504,142	33.5	%	$	435,765	32.0	%	$	486,822	43.3	%	$	486,841	55.7	%
Corporates		519,242	34.5	%		488,780	32.5	%		426,041	31.2	%		239,273	21.3	%		140,424	16.0	%
U.S. states and political subdivisions		1,903	0.1	%		1,968	0.1	%		369	0.0	%		-	0.0	%		-	0.0	%
Other foreign governments		114,427	7.6	%		112,171	7.5	%		99,846	7.3	%		101,603	9.0	%		15,206	1.8	%
Mortgage-backed securities		112,067	7.4	%		106,631	7.1	%		95,096	7.0	%		89,326	7.9	%		112,074	12.8	%
Asset-backed securities		49,207	3.3	%		37,247	2.5	%		20,362	1.5	%		27,496	2.4	%		29,810	3.4	%
Total fixed maturities		1,228,561	81.5	%		1,250,939	83.2	%		1,077,479	79.0	%		944,520	83.9	%		784,355	89.7	%
Short term investments		232,434	15.4	%		202,711	13.5	%		229,837	16.8	%		124,907	11.1	%		30,413	3.5	%
Total		1,460,995	96.9	%		1,453,650	96.7	%		1,307,316	95.8	%		1,069,427	95.0	%		814,768	93.2	%
Other investments		46,224	3.1	%		49,756	3.3	%		56,934	4.2	%		55,169	5.0	%		59,968	6.8	%
Total	$	1,507,219	100.0	%	$	1,503,406	100.0	%	$	1,364,250	100.0	%	$	1,124,596	100.0	%	$	874,736	100.0	%


CREDIT QUALITY OF FIXED MATURITIES AND SHORT TERM INVESTMENTS
AAA	$	1,043,223	71.4	%	$	1,046,725	72.0	%	$	968,804	74.1	%	$	833,416	78.0	%	$	677,294	83.1	%
AA		111,300	7.6	%		89,281	6.2	%		84,993	6.5	%		82,590	7.7	%		24,868	3.1	%
A		214,214	14.7	%		216,442	14.9	%		176,485	13.5	%		110,004	10.3	%		81,849	10.1	%
BBB		91,723	6.3	%		99,450	6.8	%		76,102	5.8	%		42,990	4.0	%		30,434	3.7	%
Below investment grade		535	0.0	%		1,752	0.1	%		932	0.1	%		427	0.0	%		323	0.0	%
Total	$	1,460,995	100.0	%	$	1,453,650	100.0	%	$	1,307,316	100.0	%	$	1,069,427	100.0	%	$	814,768	100.0	%


MATURITY PROFILE OF FIXED MATURITIES AND SHORT TERM INVESTMENTS
Within one year	$	312,253	21.4	%	$	286,503	19.6	%	$	286,690	21.8	%	$	190,111	17.8	%	$	96,660	11.9	%
From one to five years		588,707	40.3	%		740,212	50.9	%		656,081	50.2	%		473,794	44.3	%		301,166	37.0	%
From five to ten years		324,095	22.2	%		209,992	14.4	%		186,571	14.3	%		221,870	20.7	%		142,939	17.5	%
Above ten years		72,753	5.0	%		73,065	5.1	%		62,516	4.9	%		66,830	6.3	%		132,119	16.2	%
Asset-backed and mortgage-backed securities		163,187	11.1	%		143,878	10.0	%		115,458	8.8	%		116,822	10.9	%		141,884	17.4	%
Total	$	1,460,995	100.0	%	$	1,453,650	100.0	%	$	1,307,316	100.0	%	$	1,069,427	100.0	%	$	814,768	100.0	%


Average credit quality	AA+				AA+				AA+				AA+				AA+

OTHER INVESTMENTS
Investment funds	$	5,486			$	5,113			$	5,316			$	7,841			$	9,805
Catastrophe bonds		36,128				18,219				43,221				39,175				39,174
Equity securities		290				21,796				3,400				2,855				5,313
Other investment		4,320				4,628				4,997				5,298				5,676
Total	$	46,224			$	49,756			$	56,934			$	55,169			$	59,968

Flagstone Reinsurance Holdings Limited
RESERVE FOR LOSSES AND LOSS EXPENSES: PAID TO INCURRED ANALYSIS (Unaudited)



	Three months ended December 31, 2009									Three months ended September 30, 2009									Three months ended June 30, 2009
Loss and loss adjustment expense reserves	Gross			Recoveries			Net			Gross			Recoveries			Net			Gross			Recoveries			Net

Beginning of period	$	471,954		$	(15,996	)	$	455,958		$	453,490		$	(16,810	)	$	436,680		$	429,802		$	(11,582	)	$	418,220

Incurred		74,261			(5,486	)		68,775			82,434			(2,259	)		80,175			59,805			(2,164	)		57,641

Other (1)		316			4,826			5,142			4,634			1,753			6,387			18,577			(15,325	)		3,252

Paid		(65,871	)		(2,614	)		(68,485	)		(68,604	)		1,320			(67,284	)		(54,694	)		12,261			(42,433	)

End of period	$	480,660		$	(19,270	)	$	461,390		$	471,954		$	(15,996	)	$	455,958		$	453,490		$	(16,810	)	$	436,680

Paid to incurred percentage		88.7	%		(47.6	%)		99.6	%		83.2	%		58.4	%		83.9	%		91.5	%		566.6	%		73.6	%



	Three months ended March 31, 2009									Three months ended December 31, 2008
Loss and loss adjustment expense reserves	Gross			Recoveries			Net			Gross			Recoveries			Net

Beginning of period	$	411,565		$	(16,422	)	$	395,143		$	392,462		$	(14,599	)	$	377,863

Incurred		78,083			(1,489	)		76,594			79,931			4,120			84,051

Other (1) (2)		(6,039	)		4,760			(1,279	)		58,455			(7,446	)		51,009

Paid		(53,807	)		1,569			(52,238	)		(119,283	)		1,503			(117,780	)

End of period	$	429,802		$	(11,582	)	$	418,220		$	411,565		$	(16,422	)	$	395,143

Paid to incurred percentage		68.9	%		105.4	%		68.2	%		149.2	%		(36.5	%)		140.1	%


(1) This amount represents the movement in reserves as a result of foreign exchange movements.
(2) For the three months ended December 31, 2008, this amount includes the net loss reserves acquired through the Flagstone Alliance acquisition in October 2008.

Flagstone Reinsurance Holdings Limited
CAPITALIZATION (Unaudited)

	As at
	December 31, 2009			September 30, 2009			June 30, 2009			March 31, 2009			December 31, 2008

Long term debt	$	252,402		$	252,774		$	251,987		$	265,306		$	252,575
Flagstone shareholders’ equity		1,211,018			1,137,615			1,094,779			1,024,123			986,013

Total Capitalization	$	1,463,420		$	1,390,389		$	1,346,766		$	1,289,429		$	1,238,588

Leverage ratio:
Debt to total capitalization		17.2	%		18.2	%		18.7	%		20.6	%		20.4	%


				December 31, 2009						December 31, 2008
				Debt or Facility Principal			Outstanding			Debt or Facility Principal			Outstanding
Debt and financing arrangements
Junior Subordinated Deferrable Interest Notes (a)				$	25,000		$	25,000		$	25,000		$	25,000
Junior Subordinated Deferrable Interest Notes (b)				$	100,000		$	88,750		$	100,000		$	88,750
Deferrable Interest Debentures (c)				$	120,000		$	120,000		$	120,000		$	120,000
Deferrable Interest Debentures (d)				€	13,000		€	13,000		€	13,000		€	13,000
Other long term debt				$	-		$	-		$	945		$	755
Letter of credit facility (e)				$	-		$	-		$	400,000		$	285,737
Letter of credit facility (f)				$	-		$	-		$	200,000		$	-
Letter of credit facility (g)				$	450,000		$	411,959		$	-		$	-
Letter of credit facility (h)				$	200,000		$	32,306		$	-		$	-
Letter of credit facility (i)				$	50,000		$	-		$	-		$	-


Notes:
(a) The Junior Subordinated Deferrable Interest Notes have a floating rate equal to LIBOR plus 310 basis points per annum reset quarterly. The notes mature on September 15, 2037, and may be called at par by the Issuer at any time after September 15, 2012.

(b) The Junior Subordinated Deferrable Interest Notes have a floating rate equal to LIBOR plus 300 basis points per annum reset quarterly. The notes mature on July 30, 2037, and may be called at par by the Issuer at any time after July 30, 2012.

(c) The Deferrable Interest Debentures have a floating rate equal to LIBOR plus 354 basis points per annum reset quarterly. The notes mature on September 15, 2036, and may be called at par by the Issuer at any time after September 15, 2011.

(d) The Deferrable Interest Debentures have a floating rate equal to EURIBOR plus 354 basis points per annum reset quarterly. The notes mature on September 15, 2036 and may be called at par by the Issuer at any time after September 15, 2011.

(e) $400.0 million uncommitted letter of credit facility agreement with Citibank N.A. This facility was replaced on January 22, 2009.

(f) $200.0 million uncommitted letter of credit facility agreement with Wachovia Bank, N.A. This facility was terminated on June 11, 2009.

(g) On January 22, 2009, Flagstone Suisse entered into a secured $450.0 million standby letter of credit facilty with Citibank Europe Plc. This facility replaces the previous $400.0 million letter of credit with Citibank N.A. The drawn amount of the facility at December 31, 2009, was secured by $415.3 million of fixed maturity securities from the Company's investment portfolio.

(h) On March 5, 2009, Flagstone Suisse entered into a secured $200.0 million secured committed letter of credit facility with Barclays Bank Plc. The drawn amount of the facillity at December 31, 2009, was secured by $35.9 million of fixed maturity securities from the Company's investment portfolio.

(i) On June 5, 2009, Flagstone Suisse entered into a secured $50.0 million standby letter of credit facility with BNP Paribas. As at December 31, 2009, no letters of credit have been issued under this facility.

Flagstone Reinsurance Holdings Limited
EARNINGS (LOSS) PER COMMON SHARE INFORMATION - AS REPORTED, GAAP (Unaudited)


	Three months ended					Year ended
	December 31, 2009		December 31, 2008			December 31, 2009		December 31, 2008

Net income (loss) attributable to Flagstone	$	71,505	$	(75,562	)	$	242,192	$	(187,302	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic weighted average common shares outstanding (1)		83,071,505		84,878,518			84,279,777		85,328,704

Dilutive share equivalents:
Weighted average unvested restricted share units (2)		222,958		-			224,015		-
Diluted weighted average common shares outstanding		83,294,463		84,878,518			84,503,793		85,328,704

EARNINGS PER COMMON SHARE
Basic	$	0.86	$	(0.89	)	$	2.87	$	(2.20	)
Diluted	$	0.86	$	(0.89	)	$	2.87	$	(2.20	)


(1) Includes weighted average vested restricted share units.
(2) Dilutive share equivalents have been excluded in the weighted average common shares used for the calculation of diluted earnings per share in periods of net loss because the effect of such securities would be anti-dilutive.

Flagstone Reinsurance Holdings Limited
NON-GAAP FINANCIAL MEASURES RECONCILIATION
BASIC AND DILUTED BOOK VALUE PER COMMON SHARE (Unaudited)


	As at
		December 31, 2009			Septemer 30, 2009		June 30, 2009			March 31, 2009				December 31, 2008

DILUTIVE COMMON SHARES AS IF OUTSTANDING

Flagstone shareholders’ equity	$	1,211,018		$	1,137,615		$	1,094,779		$	1,024,123		$	986,013

Cumulative dividends declared		34,409			30,964			27,519			24,001			20,473

Common shares outstanding		82,985,219			82,864,844			84,864,844			84,864,844			84,801,732
add in:
vested restricted share units		205,157			205,157			205,157			205,157			135,476
Total common shares and common share equivalents outstanding		83,190,376			83,070,001			85,070,001			85,070,001			84,937,208

Basic book value per common share	$	14.56		$	13.69		$	12.87		$	12.04		$	11.61

Basic book value per common share plus accumulated dividends (2)	$	14.97		$	14.07		$	13.19		$	12.32		$	11.85

Diluted book value on an "as if converted basis"
Flagstone shareholders' equity	$	1,211,018		$	1,137,615		$	1,094,779		$	1,024,123		$	986,013
add in:
proceeds on exercise of warrant (1)		-			-			-			-			-

Adjusted Flagstone shareholders' equity	$	1,211,018		$	1,137,615		$	1,094,779		$	1,024,123		$	986,013

Cumulative dividends declared	$	34,409		$	30,964		$	27,519		$	24,001		$	20,473

As if converted diluted shares outstanding
Common shares and share equivalents outstanding		83,190,376			83,070,001			85,070,001			85,070,001			84,937,208
add in:
vesting of performance share units		3,305,713			2,813,585			2,786,585			2,871,703			2,189,982
vesting of restricted share units		168,000			328,096			299,660			320,210			147,400

Diluted common shares outstanding		86,664,089			86,211,682			88,156,246			88,261,914			87,274,590


Diluted book value per common share	$	13.97		$	13.20		$	12.42		$	11.60		$	11.30

Diluted book value per common share plus accumulated dividends (2)	$	14.37		$	13.55		$	12.73		$	11.88		$	11.53


Change in diluted book value per share: Quarter		5.9	%		6.3	%		7.0	%		2.7	%		(10.5	)%
Change in diluted book value per share adjusted for dividends (3): Quarter		6.0	%		6.5	%		7.2	%		3.0	%		(10.1	)%
Change in diluted book value per share adjusted for dividends (3): Rolling 12 months		24.6	%		5.7	%		(13.3	)%		(16.4	)%		(17.3	)%
Annualized change in diluted book value per share adjusted for dividends since inception		9.9	%		8.9	%		7.6	%		5.9	%		5.4	%


(1) Diluted book value per share incorporates the assumption that the warrant would not be exercised at the end of any period where the share price is less than the strike price.
(2) Basic and Diluted book value per common share plus accumulated dividends is calculated by dividing the sum of Flagstone shareholders' equity and cumulative dividends declared by diluted common shares outstanding.
(3) Change in diluted book value adjusted for dividends is the internal rate of return of the increase in diluted book value per share in the period plus dividends declared.

Flagstone Reinsurance Holdings Limited
SUMMARY CONSOLIDATING BALANCE SHEET - MONT FORT (unaudited)

	As at December 31, 2009
	As at December 31, 2009
	Flagstone Consolidated Excluding Mont Fort			Mont Fort			Consolidation/Elimination			Flagstone Consolidated
ASSETS
Investments:
Fixed maturity investments, at fair value	$	1,100,641		$	127,920		$	-		$	1,228,561
Short term investments, at fair value		226,621			5,813			-			232,434
Other investments		47,773			-			(1,549	)		46,224
Total investments		1,375,035			133,733			(1,549	)		1,507,219

Cash and cash equivalents		353,786			16,629			-			370,415
Restricted cash		67,686			-			-			67,686
Premium balances receivable		285,699			2,681			(9,424	)		278,956
Unearned premiums ceded		52,690			-			-			52,690
Reinsurance recoverable		19,270			-			-			19,270
Accrued interest receivable		10,641			582			-			11,223
Receivable for investments sold		2,889			2,271			-			5,160
Deferred acquisition costs		54,637			-			-			54,637
Funds withheld		22,168			-			-			22,168
Goodwill, intangibles and other assets		175,511			1,833			-			177,344
Due from related parties		5,231			(5,231	)		-			-
TOTAL ASSETS	$	2,425,243		$	152,498		$	(10,973	)	$	2,566,768

LIABILITIES
Loss and loss adjustment expense reserves	$	480,660		$	-		$	-		$	480,660
Unearned premiums		330,416			-			-			330,416
Insurance and reinsurance balance payable		61,710			10,578			(9,424	)		62,864
Payable for investments purchased		7,159			4,298			-			11,457
Long term debt		252,402			-			-			252,402
Other liabilites		63,027			128			-			63,155
TOTAL LIABILITIES		1,195,374			15,004			(9,424	)		1,200,954



EQUITY
Common voting shares		850			1,400			(1,400	)		850
Common shares held in treasury		(20	)		-			-			(20	)
Additional paid-in capital		892,817			78,100			(78,100	)		892,817
Accumulated other comprehensive loss		(6,976	)		-			-			(6,976	)
Retained earnings		324,347			57,994			(57,994	)		324,347
TOTAL FLAGSTONE SHAREHOLDERS' EQUITY		1,211,018			137,494			(137,494	)		1,211,018

Noncontrolling Interest in Subsidiaries		18,851			-			135,945			154,796
TOTAL EQUITY		1,229,869			137,494			(1,549	)		1,365,814
TOTAL LIABILITIES AND EQUITY	$	2,425,243		$	152,498		$	(10,973	)	$	2,566,768




	Flagstone Reinsurance Holdings Limited
	SUMMARY CONSOLIDATING INCOME STATEMENTS - MONT FORT (unaudited)

	Three months endingDecember 31, 2009												YTD December 31, 2009
	Flagstone Consolidated Excluding Mont Fort			Mont Fort			Consolidation/ Elimination			Flagstone Consolidated			Flagstone Consolidated Excluding Mont Fort			Mont Fort			Consolidation/ Elimination			Flagstone Consolidated

REVENUES
Gross premiums written	$	123,707		$	(38	)	$	38		$	123,707		$	988,491		$	28,106		$	(28,106	)	$	988,491
Premiums ceded		(20,792	)		-			(38	)		(20,830	)		(224,128	)		-			28,106			(196,022	)
Net premiums written		102,915			(38	)		-			102,877			764,363			28,106			-			792,469
Change in net unearned premiums		93,653			6,598			(1	)		100,250			(31,573	)		(2,441	)		-			(34,014	)
Net premiums earned		196,568			6,560			(1	)		203,127			732,790			25,665			-			758,455
Net investment income		8,252			607			-			8,859			26,822			1,709			-			28,531
Net realized and unrealized losses - investments		12,646			553			-			13,199			38,168			1,500			-			39,668
Net realized and unrealized gains - other		(20	)		-			-			(20	)		11,253			-			-			11,253
Other income		11,557			(1,162	)		(438	)		9,957			28,480			(5,320	)		(1,432	)		21,728
Total revenues		229,003			6,558			(439	)		235,122			837,513			23,554			(1,432	)		859,635


EXPENSES
Loss and loss adjustment expenses		68,775			-			-			68,775			288,645			(5,460	)		-			283,185
Acquisition costs		36,694			753			(440	)		37,007			135,261			2,646			(1,436	)		136,471
General and administrative expenses		42,989			5			-			42,994			147,064			74			-			147,138
Interest expense		2,615			-			-			2,615			12,105			-			-			12,105
Net foreign exchange losses		105			-			1			106			3,231			-			-			3,231
Total expenses		151,178			758			(439	)		151,497			586,306			(2,740	)		(1,436	)		582,130

Income before income taxes and interest in earnings of equity investments		77,825			5,800			-			83,625			251,207			26,294			4			277,505
Provision for income tax		(5,336	)		-			-			(5,336	)		(5,412	)		-			-			(5,412	)
Interest in earnings of equity investments		(308	)		-			-			(308	)		(1,352	)		-			(4	)		(1,356	)
Net income		72,181			5,800			-			77,981			244,443			26,294			-			270,737
Less: Income attributable to noncontrolling interest		(676	)		-			(5,800	)		(6,476	)		(2,251	)		-			(26,294	)		(28,545	)
NET INCOME ATTRIBUTABLE TO FLAGSTONE	$	71,505		$	5,800		$	(5,800	)	$	71,505		$	242,192		$	26,294		$	(26,294	)	$	242,192

Income before noncontrolling interest	$	72,181		$	5,800		$	-		$	77,981		$	244,443		$	26,294		$	-		$	270,737
Change in currency translation adjustment		(10	)		-			-			(10	)		2,600			-			-			2,600
Change in defined benefit pension plan obligation		(23	)		-			-			(23	)		136			-			-			136
Comprehensive income		72,148			5,800			-			77,948			247,179			26,294			-			273,473
Less: Comprehensive income attributable to noncontrolling interest		(287	)		-			(5,800	)		(6,087	)		(3,692	)		-			(26,294	)		(29,986	)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO FLAGSTONE	$	71,861		$	5,800		$	(5,800	)	$	71,861		$	243,487		$	26,294		$	(26,294	)	$	243,487


KEY RATIOS

Loss ratio		35.0	%								33.9	%		39.4	%								37.3	%
Acquisition cost ratio		18.7	%								18.2	%		18.5	%								18.0	%
General and administrative expense ratio		21.9	%								21.2	%		20.1	%								19.4	%
Combined ratio		75.6	%								73.3	%		78.0	%								74.7	%

Flagstone Reinsurance Holdings Limited
NON-GAAP FINANCIAL MEASURE RECONCILIATION (Unaudited)


	Three months ended						Year ended
		December 31, 2009			December 31, 2008			December 31, 2009			December 31, 2008

Net income (loss) attributable to Flagstone	$	71,505		$	(75,562	)	$	242,192		$	(187,302	)

ADJUSTMENTS FOR:
Realized gain on repurchase of debt		-			-			-			(1,845	)
Fair value of Warrant issued		-			3,565			-			3,565
Net realized and unrealized (gains) losses - investments		(13,199	)		111,778			(39,668	)		272,206
Net realized and unrealized (gains) losses - other		20			(13,761	)		(11,253	)		(11,617	)
Net foreign exchange losses (gains)		106			18,215			3,231			21,477


NET OPERATING INCOME (LOSS)	$	58,432		$	44,235		$	194,502		$	96,484


AVERAGE FLAGSTONE SHAREHOLDERS’ EQUITY	$	1,174,316		$	1,035,216		$	1,098,516		$	1,098,249


ANNUALIZED NET OPERATING RETURN ON AVERAGE FLAGSTONE SHAREHOLDERS’ EQUITY		19.9	%		17.1	%		17.7	%		8.8	%




		Flagstone Reinsurance Holdings Limited
		Crawford House
		23 Church Street
		Hamilton HM 11
		Contact Information:
		Brenton Slade
		Chief Marketing Officer
		(441) 278-4303


		Website Information:
		http://www.flagstonere.com





	This report is for informational purposes only. It should be read in conjunction with the documents that we file with the Securities and Exchange Commission ("SEC") pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934.