Flagstone Reinsurance Holdings Ltd. reaped the rewards of expanding its lines of business and reducing the risk of its investment portfolio to post a profit of $67.1 million for the third quarter of 2009.

The reinsurer bounced back from a net loss of $186.5 million for the same period last year, while its net income for the first nine months of the year was $170.7 million or $2.01 per share, compared to a net loss of $111.7 million or $1.31 per share, for the nine months ended September 30, 2008.

Gross premiums written also rose 0.8 percent to $174.6 million for the third quarter from $173.2 million during last year's third quarter, while the company's combined ratio - the proportion of premium dollars spent on claims and expenses - improved to 77 percent from 129.1 percent from last year.

Book value per diluted share rose 6.5 percent through the quarter to $13.20.

David Brown, Flagstone's CEO, said the company's core underwriting results were again strong this quarter as it continued to develop a geographically diversified business as well as further expanding its specialty lines and Lloyds business.

"In the quarter, our global platform generated a loss ratio of 41 percent, creating an underwriting profit of $48.5 million," he said. "This result is especially noteworthy considering the continued growth of our non-catastrophe business, which now accounts for 49 percent of our portfolio.

"A low loss ratio, when combined with our ability to achieve a high premium to surplus ratio means our shareholders will benefit from quality book value growth over time.

"We believe we are focused on the best rated lines of business in our industry and continuously optimise our portfolio by allocating capacity across lines, clients, programmes and layers as opportunities arise. Some rates have softened slightly from historically high levels but continue to significantly exceed our internal return targets."

Flagstone chairman Mark Byrne was pleased with the company's book value growth this quarter and the fact it continued to generate solid underwriting results with a conservative asset portfolio.

"Since Flagstone's inception, we have generated 20 percent rates of top-line growth and industry-leading loss ratios," he said. "The company continues to maintain strong capital adequacy and, while we have maintained a strong balance sheet, we have the ability to deploy our growing capital base to attractive opportunities without incremental expense.

"Many cedants are trying to diversify their reinsurance purchases away from large shares with the largest reinsurers; this has caused some shifting in programmes that have been with the same panel of reinsurers for many years. Obviously, this kind of change benefits the high-quality, younger companies, and in 2009 we have gained new business from some of the industry's most demanding cedants.

"Q3 2009 is of course a welcome contrast to the third quarter in 2008, which was our only very disappointing quarter since we started operations in 2006. The losses in 2008 were on the investment side; we had little credit risk, but we did have 30 percent of assets in global equities and commodities.

"We derisked the portfolio, and have amended our investment guidelines so that 85 percent or more of Flagstone's assets will henceforth be in high grade bonds and cash. While we recognise that leaves some money on the table during a rally, it also means that Flagstone is now a purer play on underwriting skill and proprietary technology."