Exposure to investments in Lehman Brothers, Freddie Mac and Fannie Mae hit Bermuda-based insurer American Safety Insurance Holdings Ltd. hard in the third quarter of 2008.

The insurance company made a net loss of $4.3 million, or 42 cents per share, during the third quarter, compared to net earnings of $7 million, or 64 cents per share, for the same period in 2007 as a result of net realised losses of $9.2 million.

The net realised losses include a $7.7 million charge for temporary impairment of debt and equity securities issued by Lehman Brothers, Freddie Mac and Fannie Mae and realised losses of $1.4 million from the sale of other fixed maturity securities due to credit concerns about certain financial services companies.

But there were some positives from the firm's results, with gross premiums written rising 48 percent to $74.5 million. Gross premiums written were up as a result of $14.1 million in premium from a speciality programme and a $9.6 million rise in assumed reinsurance premiums.

However its net investment income fell four percent to $7.5 million, combined ratio climbed to 103.2 percent from 95.3 percent and loss ratio was up at 60.1 percent compared to 57.5 percent.

Meanwhile American Safety's expense ratio increased to 43.1 percent from 37.8 percent and annualised return on average equity was a 7.4 percent loss (8.1 percent excluding net realised losses) versus 13.1 percent in each case.

Book value per share decreased as of the end of September 30, 2008, to $20.53 per outstanding share and $19.94 per diluted share in comparison to $21.53 and $20.81 respectively at the end of last year.

Total revenues stood at $40.5 million, a decline of $4.2 million, while cash flow provided for operations was $69.7 million, an increase of $60.3 million for this year's third quarter as compared to the respective 2007 quarter.

Stephen Crim, chief executive officer of American Safety, said: "American Safety Insurance remains in strong financial condition despite net realised losses from investments, representing less than 1.5 percent of our $634 million investment portfolio.

"The 48 percent growth we achieved in gross premiums written during the quarter was the result of one time transactions in which the risk was ceded to unrelated insurance companies in exchange for fee income, and we do not expect significant fourth quarter growth.

"We remain committed to preserving long term profitability through underwriting discipline and a conservative investment philosophy.

"Newer products resulting from our product diversification strategy initiated in 2006 produced over $21 million of gross premiums written during the quarter and create a platform providing the company with the opportunity to achieve significant growth when market conditions improve."