Staying away from the herd in the crowded insurance and reinsurance sector is continuing to pay rewards for 2005 start-up Flagstone Re, which has just made a $66 million profit for the third quarter.

The company's philosophy of looking for growth opportunities that don't entail paying top dollar for a Lloyd's syndicate or entertaining a potentially restrictive merger is key to its ongoing success.

That was the message of its executives as they spoke during a conference call following the release of Flagstone's third quarter figures.

In the past two years the Bermuda-based company has grown in size and now employs 230 people, of which 45 are in Bermuda and the others are overseas, notably in Nova Scotia, India, and Switzerland.

Earlier this year Flagstone took control of the Caribbean-based Island Heritage insurance company, and that move is seen as a stepping stone to it expanding its business within the Spanish-speaking parts of the Caribbean.

Flagstone made a modest $10.3 million loss in relation to the July floods in the UK. It has also reviewed its exposure to subprime-related investments and has now reduced these to $13 million, with no sub-investment grade assets in the portfolio, according to chief financial officer James O'Shaughnessy.

Chairman Mark Byrne said the company had looked at entering the Lloyd's of London market, either through acquisition or merger, and remained "interested but not desperate."

He said: "The market for Lloyd's syndicates has reached frothy heights and David (Brown - CEO) and I concluded there was nothing worth buying at these price levels. Rather we have switched our attention to look at ideas away from the market herd and are optimistic that we will be successful in finding attractive bolt-on opportunities."

CEO David Brown warned that the fact there had not been a significant catastrophe loss in North America this year should not lead to complacency.

He said: "Markets are starting to soften although in our targeted lines of business we don't expect that softening to be severe and we do expect that pricing will remain at levels sufficient to provide attractive returns.

"It is important to understand that although 2007 was characterised by a lack of losses in North America, there were several large catastrophes globally.

"Furthermore, two CAT 5 storms formed in the Caribbean and only through sheer anomaly did not make their way into the Gulf where they would surely have caused massive insured losses. This reminds us that it is not the amount of losses suffered in the short term but rather the potential for loss that should drive risk management.

"Let me use an analogy I am fond of: Let's say you are looking to buy a new house and are checking out a neighborhood. You walk down the street with your wife and several times hear gunshots; however no bullet hits you or your wife.

"At the end of the street would you turn to your wife and say, 'Based on our experience this looks like a pretty safe neighborhood!'."

Flagstone is not expecting such dramatic growth in its property catastrophe book in 2008 as it enjoyed this year, mostly because it has deployed the majority of its existing capital and expects that to remain the case with 2008 renewals.

During the past year the company has also developed its 'Live Cat' system which allows it to run weather models as part of a suite of systems "designed to give us an edge in pricing and providing cover from storms already active," according to Mr. Brown.

He added: "We didn't get a chance to write any Live Cat this year but were able to benchmark our systems by monitoring and tracking storms that did occur."