Flagstone Reinsurance Holdings Ltd. expects to ride out these tough times despite the impact of Hurricanes Gustav and Ike and the fallout from the US financial markets.

Flagstone announced combined preliminary estimates of claims for exposure to Gustav and Ike of about $85 million net of reinstatement premiums. The reinsurer predicts claim payouts of around $30 million to Gustav and approximately $55 million for Ike.

But it has no credit or counterparty exposure to Lehman Brothers, which filed for bankruptcy protection on Monday after trying to finance too many risky assets with too little capital, becoming the largest US bankruptcy and the highest profile casualty of the global credit crisis.

Lehman is expected to liquidate most of its businesses, including its broker-dealer operations and its Neuberger Berman asset management unit.

However Flagstone also has less than $1 million of net exposure to American International Group (AIG) bonds and receivables, less than $1.5 million of Wamu structured mortgage securities, no sub-prime securities and less than $2 million of Alt A securities.

AIG will be allowed to use $20 billion of assets held by its subsidiaries to provide cash needed for the troubled insurer to stay in business, New York Gov. David Paterson announced on Monday.

The move comes as AIG reviews its operations and discusses alternatives with outside parties, reportedly including Warren Buffett's Berkshire Hathaway Inc., to shore up its business amid concern the world's largest insurer could need billions of dollars to strengthen its balance sheet.

Brent Slade, media relations manager at Flagstone, reckons the estimates for respective hurricanes will be below the industry average.

"I think those numbers will probably be below the industry average for those events," he said. "So I think they should come out quite favourably.

"I think we have a pretty good handle of it compared to the overall market and I think our losses should be less than the market because we do not have much offshore energy exposure.

"We are more focused on the residential side and I think a lot of the losses are going to be commercial losses versus residential."

Flagstone uses a proprietary modelling system and process, Quartz LiveCat, to estimate the potential storm track and level of onshore insured losses before and immediately after Atlantic storms.

Its loss estimates were based on its proprietary modelling analysis, the assessment of individual treaties and client data, with the preliminary loss estimates being refined as additional information is received from cedants.

The company's investment strategy is to allocate across multiple asset classes in order to achieve superior risk adjusted total returns in the medium term. Because these allocations include several global equity indices, and commodities, Flagstone's total return for the third quarter of 2008 was about four percent.

In accordance with the company's accounting policy the unrealised mark to market gains and losses emanating from its investment portfolio were recorded through net income rather than as an adjustment to book value through other comprehensive income.

Mr. Slade said Flagstone has only modest exposure to AIG and none to Lehman. "The current situation with the financial markets was not that big an event for us because most of us had time to pare down exposure to those types of exposure," he said.

"We do not actually have any exposure to Lehman Brothers — it was one of those things that was managed by Lehman but was not Lehman assets, so there is no pressure to sell the stock and it is looking quite good from that point of view.

"As far as AIG is concerned, we have a very small bond that we found was assisted by a support leasing company."