Bermuda-based Flagstone Reinsurance Holdings Ltd. reported a seven-percent fall in profits on a dip in investment returns.

The 'Class of 2005' reinsurer achieved improvements in its underwriting performance with operating income, gross premiums written and combined ratio all comparing favourably with the same three-month period in 2007.

But Flagstone chairman Mark Byrne said the period had been "one of the most difficult investing periods in recent memory" and investments had returned 0.32 percent.

Net income available to common shareholders for the quarter was $32.9 million, or $0.38 per diluted share, compared to $35.6 million, or $0.50 per share, for the first quarter of 2007.

Operating income rose 85 percent to $57.5 million, while gross premiums written climbed to $242.2 million, up 17 percent on the prior year.

Combined ratio, the percentage of premium dollars spent on claims and expenses, improved to 66.9 percent from 74.3 percent.

"Flagstone's investment portfolio performance, while modest for the quarter, continued to show relatively low volatility with the total return for the quarter being 0.32 percent with the positive results on the cash and treasuries portfolio being offset by the poor performance of the global equity markets," Mr. Byrne said. "Our equity portfolio rebounded in April regaining approximately 50 percent of the losses suffered in the first quarter of 2008."

Flagstone chief executive officer David Brown said: " We marginally increased our production on a year-over-year basis despite increased competition, declining prices in most major markets and most lines of business, and increased retention of premiums by cedents.

"To varying degrees, underwriting discipline is prevailing within the market. Pricing is generally in line with our expectations, although we have been impacted by some significant increases in our US clients' retentions, which has reduced the amount of premiums they are ceding. In addition, there was some modest weakening of rates in Europe."

Mr. Brown said there had been significant catastrophe activity, including windstorm Emma in Europe, tornado and freeze losses in the US and property and energy per-risk events across the globe. However, these events had little impact on Flagstone, as most of the insured losses were within clients' retentions.