Bermuda-based Castlepoint Holdings Ltd. posted a net loss of $13.2 million in the third quarter of 2008 due mainly to exposure to Fannie Mae and Freddie Mac and Lehman Brothers Holdings Inc. investments and following its merger with Tower Group Inc.

The holding company made a 34-cent loss per share for the third quarter compared to earnings of 27 cents per share, or a $10.5 million profit, in the same period last year.

The merger with Tower Group, which was first announced in August, cost the company $9 million in expenses and in anticipation of the move it accumulated $218 million in cash and cash equivalents by the end of September.

As a result, net investment income was cut by approximately $2 million in the quarter versus a fully invested portfolio.

Net realised investment losses totalled $10.5 million, which included the sale of Fannie Mae and Freddie Mac preferred stock at a realised loss of $2.5 million and other-than-temporary-impairment charges of $8 million, relating primarily to hybrid securities and bonds of Lehman Brothers.

Deferred tax assets were reduced by $4.7 million as a charge to income since there is no assurance over the generation of future capital gains to offset these losses during the next five years.

CastlePoint's investment portfolio as of September 30, 2008 had a fair value of $783 million, including cash and cash equivalents. The overall book yield on the investment portfolio was 4.8 percent as of September 30, 2008 including cash and cash equivalents and was 5.7% excluding cash and cash equivalents.

Book value at the end of September was $384.7 million or $10.04 per share, while net premiums written were $100 million in the third quarter compared to $90.6 million over the same timespan in 2007.

Net earned premiums were $113.3 million in this year's third quarter, which was an increase of 72.6 percent from $65.6 million for the same period last year.

CastlePoint Re, the company's Bermuda-based reinsurance subsidiary, had a net combined ratio of 94.8 percent in the third quarter as compared to 87.8 percent for the same period in 2007, with CastlePoint Insurance Co., its US-based primary insurance company, recording a net combined ratio of 92.2 percent versus 110.3 percent over the respective periods.